Which car to pay off?

[jobae1234]

DH is out of work again. I will skip the backstory because I mostly want a mathematical answer.

I make enough to cover the bills, not much extra. We have 53k in non retirement emergency savings. So we can sustain at this pace for quite a while, possibly forever.

DH got a severance of 12k. We want to use it to pay off a car, because 1) we want to pay off everything for if this happens again and 2) we want to have more monthly cash flow wiggle room.

I understand that I could stockpile more cash but I don’t want to.

Car 1: 2018 Honda CR-V, $13,200, 4% interest rate, $414/mo
Car 2: 2021 VW ID.4, $15,030, 2% interest rate, $534/mo

So basically I could pay off the Honda faster, but paying off the ID.4 frees up more money monthly. Very torn.

This may be a dumb question because it sort of feels like it doesn’t matter.

[waverly]

Are you using additional funds to pay off the car because the 12K won’t get you quite there.

I would pay off the Honda because it is both the lower amount (snowball debt) and the highest interest rate (avalanche debt) method.

[litasail]

I would decide based on the interest rate and pay the Honda off first.

[fryjack2]

I would pay off the CRV. Purely because of the higher interest rate and the amount of the loan not being that much higher than the ID.

Its hard to determine if the $120 difference in payment a month is a big enough factor for you or if you could fairly easily cut that from your budget if needed ( if you pay off the CRV but then need to find somewhere else to cut spending).

Or there's the option of paying off the ID and putting the $120 a month towards the CRV payment when you want to. Every little bit helps pay it down faster?

[chpmnk1015]

I'd do the Honda at the higher rate.

[jobae1234]

Feb 8, 2024 19:45:05 GMT -5 waverly said:

Are you using additional funds to pay off the car because the 12K won’t get you quite there.

I would pay off the Honda because it is both the lower amount (snowball debt) and the highest interest rate (avalanche debt) method.

Haven’t decided how to close the gap. We could pull from savings, or wait 2-3 months and pay it off via monthly payments. Probably would do the latter.

[jobae1234]

Feb 8, 2024 19:46:45 GMT -5 fryjack2 said:

I would pay off the CRV. Purely because of the higher interest rate and the amount of the loan not being that much higher than the ID.

Its hard to determine if the $120 difference in payment a month is a big enough factor for you or if you could fairly easily cut that from your budget if needed ( if you pay off the CRV but then need to find somewhere else to cut spending).

Or there's the option of paying off the ID and putting the $120 a month towards the CRV payment when you want to. Every little bit helps pay it down faster?

The budget has been slashed within an inch of its life. We still have Netflix and Disney Plus and Peloton, but most other things went. Medical costs are high right now. We haven’t had a bite of takeout or gone to a single restaurant in over a month, which has been a massive overhaul. No new anything unless it’s for the kids and it’s needed. So either $400 or $500 back would provide some much needed breathing room.

[sadlebred]

I'd do the Honda.

My question would be do you have any higher rate debt like credit card debt or a personal loan? I'd pay that off before a car.

[jobae1234]

Feb 8, 2024 20:54:00 GMT -5 sadlebred said:

I'd do the Honda.

My question would be do you have any higher rate debt like credit card debt or a personal loan? I'd pay that off before a car.

Nope! No other debt. And I’ve preferred saving/invessting to low interest car note payoff (meaning this has been an intentional strategy) but we want to switch gears. So to speak. Hah. Car pun.

[ellipses84]

I’d pay off the 4% due to the higher interest rate and because the amount is lower. Save the difference in total owed and that will make up for the higher monthly payment on the other car while he looks for a job. I’d consider paying off the other car if he still has significant savings once he’s working again.

[flygirl]

I’d pay off the Honda because of the rate but also because the 12k will take care of more of the loan the the ID.4.

[midwestmama]

Feb 8, 2024 19:53:26 GMT -5 jobae1234 said:

Feb 8, 2024 19:46:45 GMT -5 fryjack2 said:

I would pay off the CRV. Purely because of the higher interest rate and the amount of the loan not being that much higher than the ID.

Its hard to determine if the $120 difference in payment a month is a big enough factor for you or if you could fairly easily cut that from your budget if needed ( if you pay off the CRV but then need to find somewhere else to cut spending).

Or there's the option of paying off the ID and putting the $120 a month towards the CRV payment when you want to. Every little bit helps pay it down faster?

The budget has been slashed within an inch of its life. We still have Netflix and Disney Plus and Peloton, but most other things went. Medical costs are high right now. We haven’t had a bite of takeout or gone to a single restaurant in over a month, which has been a massive overhaul. No new anything unless it’s for the kids and it’s needed. So either $400 or $500 back would provide some much needed breathing room.

Based on your response here, I would pay off the VW.  If it were me, $120 would be a big difference in such a tight budget.

[Susie]

The Honda.  Definitely.  The interest rate is double the VW's, and the amount is a little smaller.

[aspentosh]

Honda for sure. Then if you wanted you could snowball that payment towards the VW to pay it off faster, but honestly 2% interest is great. I understand wanting to have zero/minimal debt though.

ETA: just saw your reply to needing some breathing room. So don't snowball! But I still say Honda because 1) it's a smaller loan 2) it's a higher interest rate 3) it's not that much smaller of a payment. 

[mcsangel2]

Honda for sure, and take the remainder out of savings, if you have to, if you can't pay off the rest in 2 months.

[lust2hart]

Honda for sure!

[jobae1234]

Feb 9, 2024 12:06:59 GMT -5 Stan said:

Add me to the chorus of paying off the Honda. And since it seems like that $400 will be huge for you guys right now, I'd take the rest from savings to just be done with it. Y'all have been doing so well with taking your budget to the bone that you could give yourself the breathing room and then put whatever is left over back in to that savings. I recently took a lower paying but more family friendly job, and so I've gotten a lot more intentional with our budgeting. I actually find I have more left over from my breathing room/miscellaneous line item than I did when I made more because I wasn't paying as much attention to our spending, and it sounds like you'd be the same.

We have more left over too. It’s so wild, and disappointing. What was I doing? I can’t even remember!

[mich1]

Are the balance numbers you have listed the pay off balances if the account is paid off now?

[jobae1234]

Feb 10, 2024 14:30:12 GMT -5 mich1 said:

Are the balance numbers you have listed the pay off balances if the account is paid off now?

No, they’re what’s left on the loan. There isn’t a prepayment penalty or anything so it should be within $100 of the payoff amount, right?

[simpsongal]

Yup Honda - and we took your approach when our budget was super squeezed from daycare. Having one less monthly expense like that really made a different - it's worth it. Good luck!