stashing an emergency fund or pay off debt

[zaratekid86]

ok so im trying to see what might be better for me. I currently have 4k in my savings account and deposit 1060$ in there monthly. I am thinking about cashing it out and paying off my car balance of 6200$. that way I stop paying the 4.85% IR on my car. then I could apply my usual $1060 per month into my savings with an additional $200(what my car pmt is) until I have about 6 months worth of $. I have a credit card (16% IR)with zero balance that I can use if shit hits the fan and i don't have cash.

or

 could continue adding $ to my savings and pay off the car a lot slower via the monthly payments.


I am trying to pay off my car debt fast that way I can snowball my other debt(100k mortgage) and hopefully pay it off in 5 years or so

[marty998]

You've answered your own question....

Take the $4k, pay it into the car, and 2 months later you'll have no car loan.

I'd still still keep $1000 cash on hand at least though. Just in case of (fill in the blank) etc etc

[terran]

I'd probably hold onto $1000, but that's just me -- otherwise your plan sounds like what I would do.

[VladTheImpaler]

If you pay off the car loan, that is a guaranteed, 4.85% return.

Another idea would be to transfer your remaining $6200 to a 0% promotional offer APR credit card (for 12 to 18 months), then pay it off before the end of the promo period.
That way you get the benefit of the guaranteed 4.85% return and you can invest your savings in something liquid for 12-18 months during the promo period.

Regardless, I would keep $1000 minimum for an emergency fund at all times.

[nereo]

ok so im trying to see what might be better for me. I currently have 4k in my savings account and deposit 1060$ in there monthly. I am thinking about cashing it out and paying off my car balance of 6200$. that way I stop paying the 4.85% IR on my car. ...

You won't save a ton of money by using that $4k to pay off your car loan a few months earlier, and it leaves you temporarily vulnerable to another 'bad thing' happening.  Like others, I would favor leaving $1000-2000 in your e-fund "just in case" Here's why:

Scenario 1: Use the $4k to pay down the loan plus the $1060 surplus each month.  You will pay off the loan within 2 months and pay approximately $8.90 in interest.

Scenario 2: Leave the $4k alone and use only the $1060 surplus to pay down the loan.  You will pay off the loan in just under 6 months and pay ~$75.18 in interest, but during that period you will have $0 in your E-fund

Scenario 3: Use $3k of the $4k (leaving $1000 as an e-buffer) and use the $1060 monthly to pay down the loan.  You will pay off the loan in 3 months and pay ~ $19.40 in interest.

Synopsis: going with option 3 over option 1 costs just ~$10 more in interest and still leaves $1,000 in your e-fund should you have an unplanned expense.  Within 6 months your e-fund can be back over $4k.  Personally, the added security of having some cash on hand is worth the $10.  Do what makes you feel more comfortable.

[Teacherstache]

I agree with Nereo's #3 plan. Keep the $1000 in the bank for an emergency, then use the rest to pay down the car.