re: Car payoff vs larger home downpayment

vanguard.com

Chiming in: do what it takes to hit the 20% to avoid PMI. Once you can do that, consider other steps.
--how secure is your current employment (and your spouse's)? If you're in oilfield services or other potentially volatile sectors, you might want to sock away some of that cash as a hedge against uncertainty. On the other hand, if you are in a stable field (like, say, a teaching position) with a reasonable expectation of stable future employment, you might plan a bit differently.
--if you can do the 20% AND pay off the car, what will you do with the $350 you free up? It will take just 29 months of saving the $350 to replace it. Do you have the fiscal discipline to save a big chunk of the cash freed up by paying off debt? Apparently you can afford the $350 payment right now without huge budget austerity...but you don't want to pay off that car simply to fritter away the funds. So have a concrete plan and take action to save a portion of it (say, using a direct deposit from your paycheck into a savings account, or similar automatic transfer).
--set up retirement accounts (trad IRA, Roth, SEP, whatever fits your circumstances) and divert a portion of the $350 into those accounts.

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If it were me, I would invest it. You can get a higher return and make thousands on compounding interest over time. Or you can pay off your car and only save 300$

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This is the stupidest thing ever written. The underlying assumption is that paying off the car has an infinite compounding rate of Auto Loan interest rate. At an auto loan rate of 2.5% he is looking at maybe 2 years left paying that sucker off at 350$/mo.

That means he is missing only 2 years worth of capturing the investment premium. Even if we got on average 9-10% return, he is missing out on maybe 700-800$ max difference by year 2. If you discount that back at the investment rate of return, yo uare looking at puting ONLY 575-675$ into investments right now


The question becomes, OP does paying off a depreciating asset and lowering your debt obligation value at a 600-700$ premium?

lots of bad advice in this thread.

* Get 20% down on the house/avoid PMI
* If you do not have a emergency fund, use this to fund it
* Pay off car

I meant get it as in not have it...sorry. Bad grammar

I've got emergency fund.

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It matters. Debt is debt. Interest is interest, but debt securing a depreciating asset is bad debt. The asset itself generates negative wealth - all by itself - now you're paying it off over time (a necessary evil) WITH INTEREST - and I don't care how cheap you think money is - pouring it down a hole with abandon isn't cheap at all.

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I agree with you that you shouldn't borrow for depreciating assets. However, it is done and the loan has already been made. At this point the only difference in paying it off early or paying the minimum is 300$. It makes no difference if it depreciates or appreciates at this point. Which is why I would rather use my extra money to make a profit.

Let me throw another scenario out there. If we can't avoid PMI, what should I do?

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If he invested 9k and sat on it 3 years with 8% return he would have made 2100 by the end of year 3 assuming he wouldnt be adding any additional investments.

The only way it could work out better is if he used his 9k to pay off the car and then used the 350 he is saving for continuous investing.

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Why wouldn't he continually invest the car payment?


I know the math behind it. It is what I do. I'm telling you, yes your expected returns would be higher by gambling with the market. You just are exposing yourself to market risk and the returns arent even quite 8% vs 3% but rather 8% vs (3% + artificial future value 350$ annuity)



There is value in lowering your market risk + debt obligations. "Expected values" are just that. Nothing goes as expected