Tag Archives: Student Loan Debt

Why I Paid Down My Auto Loan on a Used Car as Fast as Possible

Cars are a necessary expense for most Americans.

Unless you are lucky enough to live near a good public transportation system or in a major urban area, you will likely need a vehicle to accomplish tasks of daily living, such as getting to work, buying groceries, or going out to dinner. Buying a car can be expensive, and having a car loan can be a pretty steep financial burden, particularly on top of student loans, a mortgage or rent and other obligations.

That is why it makes sense to buy a used car whenever possible — and to pay off your car loan as soon as you can.

My Story

For me, buying a used car just made good financial sense. As a father of three young kids who is still working on paying off my student loans while saving for their college, I don’t have a lot of extra cash to put towards the latest and greatest vehicle. And while having a new car can be great, it’s no secret that a car is a terrible investment, as a new car starts to lose value the minute you drive it off the lot.

So when it was time for me to purchase a vehicle, I looked for a solid used car that was safe, reliable and a good deal. Then I got to work paying off my car loan as quickly as possible.

Why I Chose to Pay Off My Auto Loan Faster Than Required

Many people accept car payments as a fact of life. For me, not having a car payment represents financial freedom. Car loans can often have high interest rates, particularly if you arrange financing through the dealership. Loan rates may be as high as eight or ten percent.

Car loans may also be sold by a lender to a different bank, and if it has a variable interest rate, it may become more expensive over time as rates change. For these reasons, it makes a lot of sense to pay off your car loan as quickly as fast as you can — and avoid car payments entirely.

Saving Money

Of course, there are other benefits to paying off the debt on your car. When you pay off your car loans ahead of schedule, you will save significant money on interest. Interest on your loan — even if it is at a relatively low rate — can add thousands of dollars onto the total amount of your loan.

By adding even a small amount of money each month onto your car payment, such as $50 or $100, you can shorten your loan term considerable and pay hundreds or even thousands of dollars less on your car loan. A number of online calculators are available to help you determine how much you can save by paying off your loan early.

Freeing Up Money to Use Elsewhere

The money you save by paying off your car can then be used to start saving for your next car. Unfortunately, unlike a house or a college education, a car will not last for a lifetime. By buying a less expensive car and paying off your loan early, you can set aside money for a down payment on your next vehicle. That will help you get ahead of the game for your next car purchase — and perhaps even avoid the need for a loan at all.

Reduce Insurance Costs

Paying off your loan may also reduce your car insurance costs. When you have a car loan, the lender will require a certain level of coverage. Once you have paid off your loan, you can reevaluate your coverage. You may not want to dip below a certain level of coverage, but you might be able to save some money by lowering the amount of collision or comprehensive coverage for your policy.

Boost Your Credit Score

Finally, paying off your car loan will boost your credit score. Without a car loan on your credit report, your debt to income ratio will improve (in other words, you will have less debt in relation to your income). This will make it easier for you to be approved for major purchases and to get lower interest rates on mortgages or refinancing your student loans — which can save you even more money and help you reduce your overall debt.

Closing Thoughts

While it may be more fun to drive a flashy new car or to always have the latest car, it makes good financial sense to pay off an auto loan on a used car instead. By making that choice for myself, I am helping my family reach our financial goals — and achieving more security for our future.

Josh runs a parenting, faith, and personal finance blog over at Family Faith Finance. As the father of 3 children, he is always looking for ways to save a few extra bucks for his family.

Next Steps to Take After Paying Down Student Debt

When you have finished paying off student loans, it is time to start building your wealth. It’s also time to achieve some of life’s most important milestones.

But first, I want to talk about the negative effects that student loans can have on your future.

There are many people that go to the bank to buy a home with tens of thousands of dollars of student debt on their shoulders. The loan officer looks at the debt and you can almost see the look of disappointment in their eyes because they are going to have to tell you that the student loans are driving up your debt-to-income ratio.

If you say, “but my loans are deferred” or “my loans are in forbearance,” the loan officer is going to look at you and tell you that it doesn’t matter because the debt has to be paid back eventually. At some point, while owning a home or car, the repayments may begin on your loans. That consumes part of your income. The bank doesn’t want to take the risk of you not having enough income to make your payments to them.

It is devastating, and it happens every day.

To keep this from happening to you, it is best to pay down your student loans as fast as you can so you can enjoy buying a home or new car without receiving bad news while sitting at the loan officer’s desk.

Think About Retirement

Another milestone that student loans can interfere with is investing. When you’re dealing with student loan payments, it’s difficult to put money into anything else. Of course, you can increase your income with a second job or find side gigs like I did. However, I still didn’t have a lot of room for investing until the student debt was gone.

Investing can take many forms. You can invest in stocks, bonds, or mutual funds. You can even invest in real estate, the mortgage market, or business ventures. There are many things that you can do with your money when you have the funds to do it. Think about being able to retire early or just retirement in general.

The last thing you want to do is retire and find that you don’t have enough income. There are many senior citizens filing bankruptcy because of pensions that fall short, social security that isn’t enough, and medical benefits that are still too expensive.

Think About Your Family 

With student debt gone, it is also easier to expand your family on the financial end of things. When you don’t bring children into debt, you’re able to focus more on the financial needs of your child.

It is difficult to bring a child into a debt situation because so much of your income has to be put into debt while meeting the needs of your family. Of course, it can be done. But do you want to go through that struggle if you don’t have to?

Of course not!

Regardless of what phase of your life you are in, it is important to pay off your student loans quickly. Those high balances are holding you back in more ways than one. Many good people who went to college to do something meaningful and make a good income are plagued with debt for a while after graduation. They make their minimum payments but still pay the collateral consequences of having the debt.

It can be heart-wrenching to struggle or be told “no” by a bank when all you’re doing is what you’re supposed to do.

The fact is that you need to go above and beyond what you’re supposed to do to get ahead as soon as you possibly can.

Even if you already have a family, a strict budget and some discipline can help you pay down the student debt so you can start working on other milestones in life. It’s best to pay off debt as soon as you can, but don’t ever think you are too late. People thinking that they are too late causes them to not be aggressive with their debt when being aggressive can be one of the best things they ever do for themselves and their family.

Jacob runs Dollar Diligence where he blogs about debt repayment, saving money, and side hustles. For more advice and content, follow him on Twitter.