After paying off my first student loan, I immediately began to wonder what I would do after I pay off my next student loan. It was the only loan I had from undergrad and never really amounted to much. My parents have been sending them checks for as long as I can remember, and by the time the payoff period started, the loan amount was less than the original amount borrowed ($11,000). Once the payoff period started, I was well into my quest to dump my debt, so the student loans were placed in the back seat. I was going to go after my credit cards first because I hated them the most, they charged me the most interest of all the debts I had(by far) and the balances were smaller. Those were taken out earlier this year, and I’ve moved on.
After a while, I began to wonder if I was making the right decision. My student loans are not that burdensome and the payments are not high compared to my income nor are they out of line with my cost of living. They don’t take up that much of my cash flow month in and month out (currently, $250), and I won’t be freeing up a load of cash when they are gone. (The loan I just paid off freed up a whopping $50 per month). Currently, I have 2 student loans left, (~$6,000 and ~$12,000), then the vehicle. The sole biggest cash flow hog in my budget right now is my vehicle. I spend approximately 1/3 (!!!) of my monthly take home on this truck in one form or another. I’m considering making my vehicle the next priority after the smaller student loan. Here’s what it’s currently costing me (per month):
- Monthly Payment: $315
- Insurance $135
- Gas $400
- Maintenance $20
- Total $870
That is a lot of cash. Lets start with the first one. The monthly payment is pretty simple. I didn’t have the money to buy a car flat out when my old one shot craps, and I couldn’t bring myself to buy another beater and deal with the headaches again. I have had 1 problem with this car, which was covered by the warranty and I was provided a rental car (for almost a month!). This has been a good solution for me so far, and I wouldn’t change it if I had to do it over again. The only way that I can get rid of this is to pay off the loan, as I don’t want to sell the vehicle. I plan on keeping this until it completely gives out. I’m really hoping that this vehicle will last for 10-15 years. It’s not unprecedented for the make/model, and it would be nice to purchase a used car and keep this as a special purpose vehicle for hauling, weekend trips, snow driving, etc.
The next cost is the Insurance. I don’t own this vehicle, so I need to have full coverage on everything. If I were to get in a wreck, the bank would want their money back, and I don’t blame them. I think this is high, but it has come down a bit. If I owned the car, I’d be able to get this number much lower because I wouldn’t keep 100% coverage on the vehicle.
Next cost for the car is the gas. I’m working on lowering this amount as well, but for the time being, it seems to be stuck in this position. I’m keeping both of my jobs so that I can pay off my debt sooner, and I’m trying to minimize fuel use when not commuting to my jobs. I drive quite at 2-3 hours each day for work, and that uses quite a bit of fuel. Unfortunately, this is the reality as of right now, and as soon as I can change it, I will.
The maintenance category has basically been changing oil thus far. I change the oil myself so it doesnt cost that much, but I have to do it quite frequently due to the amount I drive. I really wear down this vehicle, and I want to keep it running as best as I can. I’ve currently got 33k+ miles on the car, and I have owned it for 11 months. It’s building up miles fast, and I’d like to own it free and clear.
Along with all of these costs, my warranty is set to expire in quite soon (in the next month). I obviously wont be able to pay it off before that happens, but I’m wondering if I should make this the next priority. I’d be freeing up quite a bit of cash flow once it’s paid off (but it would take longer) and I’d own the car free and clear. In the event that I die, the student loans would go away either way, but someone could at least have my truck. Monthly costs for this could basically be halved if the vehicle is paid off.
Along the same lines, I’m always interested in advancing my career in the place I live in, which would mean a lot less driving. That would handily decrease the amount that this vehicle would cost me (less gas).
Should I continue on with the debt snowball method and move on to my next student loan, or should I pay off the more expensive secured asset?
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I’d like to see how long it would take you to pay off the truck versus your next student loan. Without that (mostly unimportant) information, I say move on to the truck. Here’s why… When you finished your student loan payments, you only freed up $50 per month. If you finished paying off the truck, you’ll free up… A heck of a lot more money! And if something happens with your jobs or you have an accident, you can always have your loans deferred for hardship. You can’t do that with your pickup truck. It’s the debt that is costing you the most, so I say get rid of it first. Even though it’ll take longer, you’ll feel a huge amount of relief when the loan is gone. (I just paid off my biggest loan, so I know that it seems like it takes forever. But boy, do I feel great about it now!)
Also, don’t say you wouldn’t change how you bought your truck if you could. Surely, if you had a time machine, you’d have saved up at least some cash for the purchase. My car is at 60k right now, and I expect it to last a bit longer because I only have a five mile commute to work and I take care of it. But I’ll carpool with a coworker or take the bus before I take on an auto loan. I know anything could happen, but I hope to start saving cash for a car once my car reaches the 100,000 mile mark. (I won’t get rid of it until it’s worn completely out, but I’d like to have that cash just in case.) Wouldn’t you have saved up the cash if you could go back?
p.s. Pickup trucks last FOREVER! My father has this little green Chevrolet that was his primary vehicle for years. It has over 400,000 miles on it, and it still drives great! So I think you probably did invest in a good vehicle. Now if only they could create a pickup with good gas mileage.
I’d say go for the truck loan also because the student loan is tax deductible.
I say go for the truck loan also.
Can you get cheaper insurance somehow? $135 a month seems really big. I guess you’re in the risk group.
Maybe shop around and raise the deduction?
I absolutely agree that you should knock the truck off first (based on the information you shared). When it comes to debt, the first thing I look for is interest. The higher the interest, the sooner it should be paid off. Then look for train loans. If, for example, you can lower the insurance once the truck is paid down, you can lower two payments by paying off one. Red is right, too, that you should take into consideration the ability to apply for hardship or other repayment solutions if you need to in the future.
Thanks for the input, and what’s making this decision so difficult is that the rate is very, very low (1.9%, I believe).
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