About 2 weeks ago, I put up a post that has been my thinking for the past 2 months: Should I pay off my final student loan, or should I pay off my truck? I got some great comments, and many (including the seemingly scrooge-like red) asked for more information, so here it is. (If you’re looking for more on when/why I bought the truck, head here) I’ve already paid off the student loan that I had with nelnet, and I’m currently working on paying off the one I’ve got with the federal government. This debate is about my Great Lakes Loan and my Truck Loan.
In this corner we have….
- Monthly Payment: $156.38
- Amount going to Principal: ~$85-89 (This seems quite variable considering payment is made on same day every month, although it could have something to do with the number of days in the month)
- Amount going to Interest: ~$67-72
- Interest Rate: 6.55%
- Principal (as of this writing): $12,426.05
- Payoff Date (if only minimums are paid, estimated): 12/2019
and in the other corner….
- Monthly Payment: $315.25
- Amount to Principal: $287-291
- Amount to Interest: $28-32
- Interest Rate: 1.9%
- Principal (as of this writing): $18,269.73
- Payoff Date (if only minimums are paid, estimated): 12/2015
In my old post, I mentioned that not only did I have to pay for the monthly payment on the truck, but I had other costs that would go down when ownership changed (insurance), which would lead to an increase in cash flow of approximately 500 (minimum payment + insurance). I got some great advice in the comments, like I mentioned earlier. Evan at My Journey to Millions noted that my student loan interest was tax deductible, while my truck interest was not, so it would be beneficial to hang on to this and get the most out of the deduction while working on other debt priorities. Joe at Retire by 40 suggested I get cheaper insurance (no can do, I’m a young male driving a car that I don’t own).
The current snowball amount fluctuates monthly depending on the number of hours at my second job and will decrease going into the holiday season (as opposed to increase like it did last year), but hopefully the loan can be paid off before I turn 26 in May (I’m not assuming I’ll get a tax refund this year). If that does happen, I’ll be able to start putting 1,500 (or more) to whatever loan I choose starting in (or around) May 2011. Payoff times for each loan (if the loan was the primary recipient of the snowball) are:
Student Loan: 7/8 Months (depending on other things) – This will actually be lower because I’ll be putting the money that I’ve saved in insurance to this as well, but I don’t know how much that will be yet.
Truck Loan: 10/11 Months (depending on other things)
One other thing to consider with the truck is that I put a lot of miles on (It’s going to be close to or more than 40k in the first year), and I’d like to have a nice gap between when I stop making payments on this buggy and buy a jalopy for my next vehicle. The miles are all highway, but when selling the vehicle, it doesn’t matter – high miles is high miles. There will also be increased maintenance costs when the vehicle gets older and normal wear and tear takes hold (I’m looking at you, water pump).
These don’t take into account me getting a pay increase of any sort (I’m not holding my breath), my situation changing and me driving less (once again, not counting on that either), or anything else that could lead to an increase in available cash. That being said I’m pleasantly surprised with these numbers. I didn’t realize that these terms were this short (considering I’ve been at this since July 2009)! I’m kind of excited by that.
As you can see from my November monthly review, I’ve chosen to pay off the truck first. While this isn’t the lowest amount left or the loan with the highest interest rate, it is the one that will put me in the greatest position to retire my other debt and increase my cash flow during that time. I’ll be glad when the title comes in the mail, that’s for sure!
As an aside, it seems many readers think I should go for the truck because of the cash flow.
What do you think? Which debt would you take on next if you were me?