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Dear Terry,
I am sure you receive this question a million times and I have read about similar situations. However, I would like your advice on my situation.
I currently have an auto loan that began in March 2007. It is a five-year, 5.29 percent loan that currently has a balance of about $14,000 (monthly payments of about $380).
I am very good about putting money away, and currently max out my Roth every year. I am also forced to contribute 10 percent of my salary to my pension. (I am a firefighter). I have about $21,000 in savings, with about $13,000 in a money market earning 1.9 percent, and the rest in mutual funds.
Should I pay off my car note? If I do so, I would have about $6,000 in savings leftover, but I would be able to put away about $500 to $700 a month into savings, along with my required Roth monthly payments.
-- Tom
Dear Tom,
You should definitely pay off your car loan if you can. You're paying 5.29 percent interest while your savings are earning far less than that. Because you seem to be a good saver, put the money you would have otherwise paid on the car note into the bank.
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