Mar 12 2009

Car loan change of plans — again


Are y’all sick of hearing about my car loan? I’m sick of having it. I’ve blogged about how we’re sending extra money to the principal, so that we can have it paid off as soon as possible.

Change of plans!

My husband’s company is laying off 2,500 people worldwide. Crud.

Though we have a six-month emergency fund, that’s starting to feel like potentially not enough in the event of a layoff. It might make more sense to send extra money to savings, just in case we need it.

Once we have enough money to pay off the car in full, we can do it then or we can hold on to our savings and continue to make payments. It’s all about the cash flow right now.

What will this mean for our bottom line?

  • If we make no additional payments on our car ever, we will have it paid off in December 2010, which is one year early. We will owe $370 in interest between now and then.
  • Paying it off in full in December 2009 is $258 in total interest remaining, a difference of $112.
  • Paying it off in full in June 2009 (a big stretch, but it was a goal of mine) would be $120 in interest paid.

When I look at interest alone, $370 max isn’t that much in the grand scheme of things. Sure, it’s money that I’d rather not pay, but if the alternative is having an extra 2 to 3 months of emergency fund saved, I think I’d rather take that option until things start to improve.

I still want to be on the path of getting out of debt, and I still want to be held accountable for it. I’m going to update my debt ticker in my left sidebar to reflect the balance remaining (plus the 1% fee we’ll be charged for paying it off early, so $115) and the amount in savings earmarked for the car, should we want to send the funds there.

Are you focusing on building up savings instead of reducing debt right now? Or are you working on both?

Posted under Uncategorized | 18 Comments »

18 Responses to “Car loan change of plans — again”

  1. Oh no! I really hope you guys aren’t affected by the layoffs. But it really is amazing how news like that is SO much less stressful when you have that savings put away. I’ve lived paycheck to paycheck before, and I can’t imagine fearing a layoff without that cushion.

    I’m definitely focusing more on savings right now because of the economy. We had big plans to put all of our extra money toward my student loans. But when the market crashed and the layoffs started, we made the decision to keep making the minimum payment for now so we can use that extra money for liquid savings.

    Like you said, the nice thing about savings is it’s right there if you need it. If you make the decision to put the money toward debt after all, you can always pull it out of the account and send a check to your car loan. Once you send it to debt, there’s no taking it back and putting it into savings if you need it.

    As much as I want to be debt-free, paying off that loan a little earlier doesn’t make me feel as secure as having a large sum of cash in our savings account in case of emergency.

    Karen’s last blog post..Giving time instead of money

  2. I know your pain. I have redone my 2009 budget like 5 times. I just can’t get it to jive. I hope that you DH doesn’t get laid off but you know what you are doing with a budget. It was looking like my DH might get laid off so I came up with an unemployment budget. Just doing that made me feel so much better. Best wishes and keep up the good work. Oh and by the way, I’m not sick of hearing about your car loan.

    SonyaAnn’s last blog post..Baby Gift

  3. I hope your DH doesn’t get laid off–these are really tough times, but at least you’re in a good situation with all the planning you’ve done.
    Our only debt is our mortgage. In the past, we’ve been putting extra money towards the principal, but now we’re stashing extra into savings each week instead. Thankfully, my husband’s job is very safe, but mine is not. Without knowing what’s going to happen, I’d rather have a lot of money saved for unknown expenses than save a few extra dollars on interest.

    I don’t want to be depressing, but I’m a realist, and I have no hopes of the economy turning around in the near future. I really think everyone who has extra cash should be putting it into savings, whether they think they’re in a stable position or not. We can’t fool ourselves into thinking that an economy that was so good for so long can be bad for a few months then go back up to the way it was before. I think we’ll be in this recession for several years, and I want to be as prepared as possible.

    Just my two cents, but I think you’re on the right track!

    Marybeth at‘s last blog post..Skip Hop Dash Deluxe Diaper Bag 45% Off

  4. I’m focusing even more on paying off debt, personally. But that’s because by the time I pay all the bills, there is not enough left to realistically be able to build a big enough cushion… I’m still saving some money, but I’m focusing more on throwing money at the debt because at least right now, freeing up the money flow will be far more beneficial to me (especially emotionally!!) than having a ton of money in the bank.

    That being said, if I was in the position you are, I’d absolutely do the same thing that you’re doing.

    Jennifer’s last blog post..Why I Shouldn’t Save My Credit Card on Websites

  5. We’re focused on paying down our only debt – the mortgage. But I’m having the same problem, I keep shuffling our budget around because of the economy.

    What I think helps is examining the monthly cost of a decision. It looks like you’re only paying $10-15 per month in interest, so I would make sure the e-fund is where you want it to be first.

  6. The way the interest is set up is we pay the bulk of the interest in the beginning, and each month the amount of interest paid goes down a little. For example, the first month we paid like $66 in interest. Now, we’re down to about $30.

    In the final year of our loan, we’ll be paying $10 or less in interest each month, so the incentive to pay it down earlier to save interest goes down.

    I hope that makes sense. My brain is tired and i need a nap.

  7. Kacie! You can get around that prepayment penalty. How the prepayment penalty works is that it’s 1% of the principal balance left. So, if you keep all your money in this “car savings” and then you have enough in there to pay it off and you decide to do so, what you do is this: Say you have $5,000 left on the loan. You make a payment of $4990 or so principal only. Then the next day you go in and ask for a payoff. Your prepayment penalty is going to be 1% of 10, or 10 cents!! :) This is what I always tell my clients to do. I promise it works!! If you have questions, email me. :)

    I’m so sorry to hear your hubby’s company is laying off people. I’ll keep you all in my prayers!

    Mrs. Money’s last blog post..‘Fess up Friday

  8. I’m in the same boat as your hubby. We just don’t know who will be laid off in my company and we only have a couple more weeks before we find out. *sigh*

    We started living off of one salary this last Tuesday. It is a shock to the system for sure. But as long as I’m getting a paycheck we’re putting it away into our savings.

    I’m stressed beyond belief…especially because I’m pregnant. But I can’t do anything to to change whatever happens. It’s in God’s hands now.

    megscole64’s last blog post..Business Idea – Booth Sitter

  9. I’m not tired of hearing about it either! I hope that the layoff doesn’t hit your hubby. There are so many right now, it’s got to be scary. My husband is military so people he works with always say they can’t be fired or laid off, but that’s actually untrue. There are ways for military to be put out of jobs too, if the right people get the right urge.

    I loved reading the comment from Mrs. Money about the prepayment penalty. I wonder if it works that way with mortgages too!

    Keep going – you are definitely on the right track and I agree with the other commenters: I’d do the same thing in your place.

    Melonie K.’s last blog post..Frugal Fridays: Squeezing the Juice

  10. Way to go for having a 6-mo fund. But as much as I am gung-ho about paying off debt immediately, I think you’re really smart to save all you can for a potential layoff. My husband has been mostly unemployed for a year now (car accident/knee injury was the initial cause), and we never expected it to be this difficult to find a job! All we had was what was left from our new-baby-cushion-fund so we’re now living with relatives until he can a job. It hurts to keep putting the student loan on deferment, but we have COBRA premiums to pay for because another baby is on the way!

    In this economy, save save save! $370 in interest, while maddening, is a reasonable price to pay for some peace of mind. I hope he gets to keep his job! There should be a rule against laying off people with brand new babies. :-D

  11. I’m sorry to hear about the layoffs. You should feel good that you have about a 6 month emergency fund, most people dont have anything near that number, so you’re doing things right! As for the car, I’d hold off on any extra payments and keep yourself cash heavy. Cut out frivolous expenses, stockpile your cash, and you’ll be able to make it through the worst if your husband gets laid off. And if he doesnt? Well, then you’ve just saved that much more for a new house!

  12. We’re focusing on saving, because anything we’re going to pay off from here on out is $3,000 or more (midwife, old unemployment debt, student loans) so we’d have to have that much to pay it off.

    I’m not a big fan (and never have been) of making extra payments. Save it up separately and then pay it off in one fell swoop. (It feels better for me to do it that way on an emotional level too.) I don’t spend extra when I see we have savings, so it’s not an issue of “if it’s there it will get spent so pay something with it!”

    I hope you stay safe through this round of layoffs!!

    jennydecki’s last blog post..Beyond Mom

  13. I agree with your choice. The value of a bit extra in your savings is worth more than paying off the loan early, especially in the worrisome economic climate today.

    Curious Cat Investing Blog’s last blog post..12 Stocks for 10 Years – March 2009 Update

  14. We’re working on our mortgage. We’ve just locked in a refinance rate 1.5% below our original loan from 2007. If we continue to make the same payments we’ll pay it off 8 years early. My husband’s job is pretty secure, but if we did face a financial crisis, we could immediately go down to the minimium payment and have a $190 cushion monthly,among several other changes. Instead, we hope to make even larger payments with any raises (probably won’t happen this year). We’d love to pay the house off in 15 years…shortly before we start helping with college tuition. Ugh.
    I like seeing your progress on you car loan, Kacie. I’m cheering you on!

  15. I like that you are being flexible in your approach to paying down debt versus saving. The key is that you have your blog and your readers here to keep you monitoring yourself and your debt payoff and your saving. Now, if only we could run the government the way your run your finances….. :)

    Steve’s last blog post..How To Get Rid of Time Wasters and Double Your Income

  16. I think that sounds like a wise plan. With a 6 month emergency fund in place, you’re way ahead of the game and could be totally fine, but if having more in savings makes you more comfortable, go for it, especially when it’s not costing you much more for the car loan.

    We’re doing a similar thing with a baby coming this summer. We’re setting aside all the money we’d be paying on medical school loans as a temporary emergency fund. When the baby comes, everything’s fine and we don’t need it, we’ll make a big payment on the loans. But it’s there just in case we do need it.

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Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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