A few months ago my wife and I paid off my car, just in time as my wife was switching jobs and I was no longer going to have an income. It became very important for my wife and I to pay off as much debt as possible since I wouldn't have an income and we had no idea of how everything would be for us financially. Once we paid it off it was the best feeling ever knowing that we would no longer have a car payment. We knew that sooner or later we would be needing another care but had no idea how difficult it would be for us to afford one since we only had one consistent income coming in. Our initial plan was to prepare for another vehicle 6 months after paying off the first one but 6 months has come and is almost gone and we've decided it would be better for us to pay off more debt rather than getting another car payment. We know once we pay off more debt our interest rate could be much better than what it would be if we purchased a car now.
Our reasoning behind wanting a new car in the first place is because my wife drives a very small four door Saturn Ion that she's had for 11 years. With a little one and lots of stuff to carry with having a baby we figured it would be best if we upgraded at least one of our vehicles to an SUV. before winter comes. Her car has also had so many recall over the past few months so we knew we didn't want to deal with it any more. We hadn't even taken her on the highway in a few months because of the shaking of the steering wheel. until last week when we purchased new tires and had some much needed maintenance done on it that we hadn't done in a long time. I will admit that in the past we've neglected our cars but we've come to realize how important it is for us to be debt free and we'd rather not add on another car payment without having more debt paid off.
I recently found an article on Fortune that talked about "Why you should pay off your car loan ASAP." Unfortunately for me and my wife we didn't have the opportunity to take advantage of some of the benefits of paying our car off early with being able to invest the 9% interest rate that we were paying towards our car into a secure invest that would benefit us greatly in the future. However we were able to pay off our car to benefit us with our monthly budget to ensure as I was no longer working it wouldn't be that much of a strain for us. I do suggest if you are a person who is in a good financial place to be able to pay more towards your car payment to decrease the interest and principal payments or if your in a good place financially where you can pay your car off sooner then the term you would benefit greatly.
Lets break this down! Say you have a 60 month term car payment with a 6% interest rate at $300 a month and you decide to pay it off in 36 months leaving you with 24 months of a premature pay off date. You decide that you'd like to invest the $300 a month with another $1,500 that you've been saving in a compound interest account for the remainder of 24 months that you would have had if you didn't pay the car off. You have compound interest twice a year bring your initial invest of $1,500 to $9,218.79 would you say you've made a wise decision to invest the money instead of spending it on something else of creating more debt instead of planning for your financial future.
If you anything like my wife and I you'd be checking your finances daily to see what it is you may need to change to ensure you are getting out of debt sooner and paying a car off sooner is always a wonderful option of freeing up cash and investing for the long haul. If we were in a better financial situation when we decided to pay my car off I would have loved to take this approach to investing in a compound interest account for at least one year before getting another car and paying more debt off to have a lower interest rate and payment.
Mr. Daddy Duties
Matthew Gamble Sr. is a father, husband, friend, and blogger. He writes about what it's like to raise Matthew Gamble II also known as M2 as a stay at home father. Join him on his journey into fatherhood with Mr. Daddy Duties!!!