Finally, after years of making monthly payments, I paid off my car loan. The $6,800 that remained on my car loan stuck out like a sore thumb when reviewing my monthly transactions. With at least six months of emergency savings in place and all other high-interest debt paid, I made the decision to eliminate the loan. No more $361 draft from my checking account every month. It wasn’t the easiest of decisions, but I bit the bullet and submitted the payment. Oh does it feel so good!
Payment black hole
I’ve been making car payments since 2012. That was the year I decided to trade in my fully paid off Honda for a fancier car. I guess at the time I thought a fancier would make for more dating prospects. Not so much! Anyhow, that decision in 2012 got me sucked into a leasing black hole where I was essentially getting a new car every three years. Sounds appealing, but those payments sure do add up quickly. I broke the lease cycle in 2018 when I decided to buy out my lease. Of course, doing so meant more payments, but at least these would eventually end with my fully owning the car.
Evaluating opportunity cost
I’ve had money in the bank to pay off the car for quite some time now, but haven’t been in a rush to pay it off. My interest rate on the loan was 5.89% APR. Given the relatively low rate of interest, I contemplated using the pay-off money for some investments to hopefully make more than I was paying in interest. In the end, I decided to pay off the car and set up a recurring monthly transfer of $361 from my bank account to an investment account. Figured I’d rather pay myself than the bank.
Doing my due diligence
This pay-off exercise was really helpful in evaluating my financial position. Before I paid off my car loan, I made sure I had at least six months of expenses, in addition to the payoff amount, in the bank. Next, I verified that I had no other outstanding debt obligations with higher interest rates. Finally, I reviewed whether or not I might be better served by directing the pay-off amount into potentially higher-yielding investments. In the end, my gut told me to pay off the debt, and that’s what I did.