I began aggressively paying off my student loans after a nice promotion at work. Last month the total is finally wiped. I’m debating what to do with the 1,200 that is newly freed up.
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Rebuild emergency fund that has slowly bled down to a little over 1 month of coverage. Ideally I’d like 6 months.
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Aggressively pay off my partners car. Right now I have two car payments. Stupid I know but my old car finally died after 18 years. Right now the payment is $550. I have about 8k left on the car.
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Catch up on my IRA. Right now I’m not on pace to maxing it out for the year but pretty close.
INFO – I don’t have any other debts (no credit cards or other loans) other than my reasonable mortgage. I love the idea of just going super aggressive and paying off the car and getting another $550 in the monthly budget in a few months but that leaves my emergency fund low and I won’t be able to max out to the IRA. I guess I’m trying to balance everything.
Student loans paid off now what?
byu/NardaQ inpersonalfinance
Posted by NardaQ
11 Comments
i’d build the emergency fund back up first. one month is just a little too thin, especially with two car payments sitting there.
you don’t have to be perfect about it though. maybe send most of the $1,200 to savings for a while and a smaller chunk to the car or ira, just so you still feel like you’re moving on all fronts.
you already did the hard part by killing the student loans. i wouldn’t make yourself cash-stressed right after that.
EF sounds reasonable.
It’s generally ill advised to pay off debts of someone you are not married to. If you are, identify the interest rate and then apply the principles of the Prime Directive below.
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Sounds like you are asking about a framework for what to do with money.
Start with reviewing the Prime Directive in the PF Wiki. It will answer your question and many other questions you didn’t realize you should be asking.
* https://www.reddit.com//r/personalfinance/wiki/commontopics
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Can you explain more about the car? You have 2 car payments or you have 1 and your partner has one?
Provide totals and interest rates as well.
I would say not #3 yet. You need to get an EF and get rid of high interest debt.
Your emergency fund should certainly be priority #1, then catching up on retirement.
Is your partner’s car a shared vehicle? I’m unclear on what you mean about having two car payments.
What are the interest rates on your car loans?
Honestly with this economy I would focus on emergency fund.
Firstly, congrats on paying off your student loans
1. Get emergency fund up to 6 months
Then
2. Catch up on IRA
If you like the idea of reducing the car payment because of peace of mind, then I would put half towards the car(s) and half towards the IRA. 6% isn’t a great rate but time on the market (on the IRA) is probably more beneficial in the long run.
Also, if the car loans have the same rate, it might actually make more sense to pay the 34k loan off now because it would be accruing more interest per month (same interest on higher $ amount)
Emergency fund 100%, that shouldn’t take too long to get up to 6 months, then worry about anything else.
Aggressively pay off both cars assuming you are married. How long will that take?
You could put $400 on #1, $400 on #2, and $400 on #3. After a few months, you will have a better feel for how you want to allocate the $1200.
This doesn’t have to be a one time decision, you can reallocate that money when needed. I like the idea of building up your EF and paying off the 8K car loan faster. In about a year you have eliminated a monthly payment on that car and can allocate your new found money to either the newer car or retirement savings.