Paid off our last Credit Card - yay

Stephanie2167

Last month we paid off our last credit card. We also have about 5 months of expenses in our eFund. We're planning to continue to contribute monthly to it but if we continue on the path we're on (watching our....errr my spending) we should have some money left over at the end of the month. We have a car payment on my van that is $190 a month and we still owe $6000 on it. The interest is 2.75%. Should we now start to pay down the car loan or just continue putting any extra money into savings? We aren't homeowners yet so that hopefully will be in our future as well. Between the two of us we also contribute 24% to retirement monthly.

Thanks!

jtmh2012

Why not split it?  50% of the extra to savings, 50% to the car payment?

als1982

I'd pay off the car.

jtmh2012

I was also thinking, you could use the savings for a down payment on the house.

LillibetteV

Congrats! Since you have a nice emergency fund saved up I'd kill the car loan. You'll save on interest and it will help your DTI ratio when you go to apply for a mortgage. Once that's paid off roll all those payments into saving for a downpayment. 

bmo88

Congrats! That's a great accomplishment. Personally, I am not debt averse when the amount is that low, with a low interest rate. I would probably increase the car payment by about $50 to $100 a month and then put the rest into savings for a down payment. The house is going to cause you a lot more than the interest on your car loan.

jtmh2012

Just remember, if you do kill the car loan before getting a house, leave enough room in your budget to allow for a car loan.  A normal mortgage is 30 yrs, but even with a 15yr most people will end up having to buy a car.  You don't want to be stressing over how to pay for both.

csuave

Congratulations!  Do you have a timeline in mind for buying a house?  If that is several years out then I would knock the car loan out now. 
If you want to buy a house in the next couple of years then saving for a down payment is a more pressing goal.

als1982

jtmh2012 said:

Just remember, if you do kill the car loan before getting a house, leave enough room in your budget to allow for a car loan.  A normal mortgage is 30 yrs, but even with a 15yr most people will end up having to buy a car.  You don't want to be stressing over how to pay for both.

Or you could keep putting the same amount you were paying the car loan into a savings account and then buy your next car with cash!

cbee817

I would pay the car off sooner- it'll feel like another win similar to the credit cards. Can you use the old credit card payment and snowball? If you can do $500/month it'll be paid off in 13 months.. might be a nice weight off of your shoulders. Your e-fund is probably pretty large- maybe use the amount that you are putting there each month to start a new down payment fund?

LillibetteV

als1982 said:

jtmh2012 said:

Just remember, if you do kill the car loan before getting a house, leave enough room in your budget to allow for a car loan.  A normal mortgage is 30 yrs, but even with a 15yr most people will end up having to buy a car.  You don't want to be stressing over how to pay for both.

Or you could keep putting the same amount you were paying the car loan into a savings account and then buy your next car with cash!

That's what we're doing! I hope to never finance a car again in my life. 

als1982

LillibetteV said:

als1982 said:

jtmh2012 said:

Just remember, if you do kill the car loan before getting a house, leave enough room in your budget to allow for a car loan.  A normal mortgage is 30 yrs, but even with a 15yr most people will end up having to buy a car.  You don't want to be stressing over how to pay for both.

Or you could keep putting the same amount you were paying the car loan into a savings account and then buy your next car with cash!

That's what we're doing! I hope to never finance a car again in my life. 

The drive is so much nicer, I can promise you!  

LillibetteV

als1982 said:

LillibetteV said:

als1982 said:

jtmh2012 said:

Just remember, if you do kill the car loan before getting a house, leave enough room in your budget to allow for a car loan.  A normal mortgage is 30 yrs, but even with a 15yr most people will end up having to buy a car.  You don't want to be stressing over how to pay for both.

Or you could keep putting the same amount you were paying the car loan into a savings account and then buy your next car with cash!

That's what we're doing! I hope to never finance a car again in my life. 

The drive is so much nicer, I can promise you!  

For sure. My car (back when we still had two) had been paid off years ago, but then I got married and husband still had a loan. I killed that thing as fast as possible and we haven't had a loan in awhile now. The day we paid it off I adjusted our automatic savings transfer to include what we used to pay for the loan. I also have zero desire to ever be a two car household again, but we'll see how long that lasts once we have a few kids haha. 

brij2006

I'd use the savings and just pay off the loan then aggressively get the emergency fund back up.

Ditto others in that you can then take that car payment and put it aside so you can pay cash for the next vehicle avoiding an auto loan altogether.

short+sassy

Congrats!

You really can't go wrong either way, but I'd focus more on saving for the house down payment since your car loan interest rate is so low.

Depending on the timing for your house and end of your car loan, there are a couple things to be aware of.  I know it sounds crazy, but paying off your car loan might lower your credit score.  Not by a lot and sometimes it's just temporary.  But it is one less "type" of credit on your report which is a low impact factor on your credit score.  I'm not necessarily saying don't pay off the car loan before you buy a house but, if you're going to pay it off first, I would do it about 6 months (or longer) before shopping for mortgages.

Here's the big positive, that @LillibetteV mentioned, for paying off your car loan before you all buy a house.  You will qualify for a lot more because your DTI ratio will be stellar.  Real life example.  My car was totaled in an accident shortly after I'd gotten a pre-approval for buying my first home.  I knew I was going to have to buy another car and I knew I would need to finance it.  I was so worried that getting a car loan, while I was house shopping, was going to really mess up my chances of buying a house and I'd have to wait longer.

I called my banker and he assured me that, as long as my new loan payment was not more than my previous loan payment, it really didn't matter.  Phew.  As it turned out, my new loan payment was $100/month less than it previously was.  Just that $100/month less in my debt caused my preapproval to jump up $30K.  I was sure I hadn't heard him right, lol.  I questioned him to make sure I was understanding correctly and he verified that, yeah, that was about right.

LillibetteV

Like short+sassy said, DTI can be a bigger swing than you would expect. Before we were married (or even engaged for that matter) I was buying a house that my husband was going to live in with me, but without a marriage license I refused to own property with him. It was also moot to me since I had the downpayment and knew I'd qualify for more based on my DTI. Just to prove it to him we both went and got pre-approved separately. We made pretty much the exact same salary (w/in a couple thousand of each other) and both had 800 credit scores and yet I was approved for nearly double. I had zero other debt and he still had a student loan and car loan totaling probably $20-30k at the time (they've both since paid off). He was shocked at how much of a difference the debt made on his ability to qualify for a mortgage. 

labro

Congrats!!

Just echoing everyone else's advice! Regarding credit scores dropping after a car loan payoff I can definitely speak to that and say it's true. My score stayed high for the first month or two after my car was paid off but then it started steadily going down for something like 4 months before leveling off and it seems to be rising back up again. Credit scores are freaking weird....it never went out of the excellent range...but there was a noticeable swing and the only thing I could attribute the change to was my car loan payoff.

Stephanie2167

Thanks for the input. We transfer with the military next year so depending on where we get stationed (this could be our last move) we could buy in the next 1 - 3/4 years. Just depends.

I think depending on how much we end up having left at the end of the month, I'll just throw a few hundred at the car loan as we can just to get it down a little quicker. My husband does need a larger car here pretty soon so that is something we have to think about as well.

Thanks for the advice.

short+sassy

LillibetteV said:

Like short+sassy said, DTI can be a bigger swing than you would expect. Before we were married (or even engaged for that matter) I was buying a house that my husband was going to live in with me, but without a marriage license I refused to own property with him. It was also moot to me since I had the downpayment and knew I'd qualify for more based on my DTI. Just to prove it to him we both went and got pre-approved separately. We made pretty much the exact same salary (w/in a couple thousand of each other) and both had 800 credit scores and yet I was approved for nearly double. I had zero other debt and he still had a student loan and car loan totaling probably $20-30k at the time (they've both since paid off). He was shocked at how much of a difference the debt made on his ability to qualify for a mortgage. 

Right on!  I did the same thing.  My H and I had been living together for almost 10 years (but not married or engaged) when I was ready to buy a house.  We also kept our finances separate.  My down payment.  I was (and still am) the only one on the loan and deed.  He paid me "rent" and half the bills, but I could have paid all of that and the mortgage on just my income also.

LillibetteV

short+sassy said:

LillibetteV said:

Like short+sassy said, DTI can be a bigger swing than you would expect. Before we were married (or even engaged for that matter) I was buying a house that my husband was going to live in with me, but without a marriage license I refused to own property with him. It was also moot to me since I had the downpayment and knew I'd qualify for more based on my DTI. Just to prove it to him we both went and got pre-approved separately. We made pretty much the exact same salary (w/in a couple thousand of each other) and both had 800 credit scores and yet I was approved for nearly double. I had zero other debt and he still had a student loan and car loan totaling probably $20-30k at the time (they've both since paid off). He was shocked at how much of a difference the debt made on his ability to qualify for a mortgage. 

Right on!  I did the same thing.  My H and I had been living together for almost 10 years (but not married or engaged) when I was ready to buy a house.  We also kept our finances separate.  My down payment.  I was (and still am) the only one on the loan and deed.  He paid me "rent" and half the bills, but I could have paid all of that and the mortgage on just my income also.

Woo! We did the same and it drove me nuts having him pay me "rent". I always saw it as our home and the second we got married we joined all of our banking accounts so all money goes in and all bills come out without it being "my" money or "his" money. My maiden name is still the only legal owner of the house though. Thankfully the "rent" period was relatively short - he proposed on the front porch as soon as we got to the house after the closing. He had been planning it all along, but since I was so adamant about not owning property together without a ring he didn't want to ask me earlier and risk me thinking it was his way of getting on the deed lol. If we ever sell this place though we'll both be legal owners of the next house. 

short+sassy

LillibetteV said:

short+sassy said:

LillibetteV said:

Like short+sassy said, DTI can be a bigger swing than you would expect. Before we were married (or even engaged for that matter) I was buying a house that my husband was going to live in with me, but without a marriage license I refused to own property with him. It was also moot to me since I had the downpayment and knew I'd qualify for more based on my DTI. Just to prove it to him we both went and got pre-approved separately. We made pretty much the exact same salary (w/in a couple thousand of each other) and both had 800 credit scores and yet I was approved for nearly double. I had zero other debt and he still had a student loan and car loan totaling probably $20-30k at the time (they've both since paid off). He was shocked at how much of a difference the debt made on his ability to qualify for a mortgage. 

Right on!  I did the same thing.  My H and I had been living together for almost 10 years (but not married or engaged) when I was ready to buy a house.  We also kept our finances separate.  My down payment.  I was (and still am) the only one on the loan and deed.  He paid me "rent" and half the bills, but I could have paid all of that and the mortgage on just my income also.

Woo! We did the same and it drove me nuts having him pay me "rent". I always saw it as our home and the second we got married we joined all of our banking accounts so all money goes in and all bills come out without it being "my" money or "his" money. My maiden name is still the only legal owner of the house though. Thankfully the "rent" period was relatively short - he proposed on the front porch as soon as we got to the house after the closing. He had been planning it all along, but since I was so adamant about not owning property together without a ring he didn't want to ask me earlier and risk me thinking it was his way of getting on the deed lol. If we ever sell this place though we'll both be legal owners of the next house. 

Precious!  That is one of the best proposal stories I've ever heard!

I found out, after the fact, that my H had been thinking about proposing to me for awhile, but then I started talking about buying a house.  He has bad credit and didn't want to be the stone around my neck, if I bought a house after we got married, so he held off proposing until after.  At least that's supposedly part of the story according to him.  He still took 18 months after I closed on the house before he proposed, lol.