Finance Question: To pay loan or save or buy new vehicle. I've included my specifics?

Hello,

About me: Full-time employed and with a very stable company. Should get promotion soon (increasing experience, and education). My gross income was 49,000 in 2016.

I have in savings 11,800 dollars. I owe in student loans about 22,000 dollars. I have an old 2002 truck (my daily driver with 200,000

Hello,

About me: Full-time employed and with a very stable company. Should get promotion soon (increasing experience, and education). My gross income was 49,000 in 2016.

I have in savings 11,800 dollars. I owe in student loans about 22,000 dollars. I have an old 2002 truck (my daily driver with 200,000 miles)which I need to stay running. I'm able to repair non catastrophic repairs myself.

For some reason I can't cope with owing the student loans and it eats at me. Should I pay off a significant portion of those loans with my savings? Leave myself say 2,000 in savings. What options do I need to think about? The temptation to buy a new vehicle is there, but I wouldn't enjoy it knowing I owe so much.

I also live with my girlfriend (been together years) and we own the house we live in. The mortgage doesn't bother me. I know that is inevitable. All of our monthly bills combine to about 1,200 dollars. We split this evenly so I pay 600.

Therefore my income breaks down as follows:
Living expenses (including cell phone, cable internet, utilities, mortage, and food)= $600
Insurance on old truck= $45 dollars per month liability only
My net income after insurance and state retirement from my job= roughly $2500 per month
So the question is: Should I pay off a big portion of those loans to get the principal way down. I can build the savings back up in 2017. Should I look at buying a new vehicle with 1.99 APR? Or should I continue to saving and pay 500 a month on the loans ( sort of a set it and forget, although very hard for me to do)?

Best Answer:

Rob: "To pay loan or save or buy new vehicle."

Neither.

You leave that 11k in savings. You need 3-6 months' living expenses in an emergency savings account. What happens if you break your leg skiing and can't work for two months? Or your roof leaks and furnace goes kaput? Or you suddenly have two funerals and a wedding you need to buy plane tickets for? Life has unexpected expenses that you should "expect" by having an emergency savings account.

Now that you have an emergency savings account, any extra cash-flow you have coming in can be socked at the student loan and/or contributed to a retirement account. You need to be doing BOTH of those things.

As far as the new truck goes, you can't afford one. You'd be living above your means if you bought one. Once you've paid off your student loans and are contributing an appropriate amount to a retirement plan, you can start saving money for a new vehicle. Preferably a decent used one.

ETA: I see that you're contributing to a "state retirement account". You didn't say how much. Are you funding your own personal Roth IRA? If not, you should be.

ETA: You're only putting 4k into retirement savings per year. You're woefully under-funding your retirement. And by the way, your retirement investments should make more than the 4-6% the student loans are costing you.

Other answer:

Rob:
"to pay loan or save or buy new vehicle…"

neither…

you leave that 11k in savings… you need 3-6 months' living expenses in an emergency savings account… what happens if you break your leg skiing and for the life of me cannot work for two months? or your roof leaks and furnace goes kaput? or you suddenly have two funerals and a wedding you need to buy plane tickets for? life has unexpected expenses that you should "expect" by having an emergency savings account…

now that you have an emergency savings account, any extra cash-flow you have coming in can be socked at the student loan and/or contributed to a retirement account… you need to be doing both of those things…

as far as the new truck goes, you for the life of me cannot afford one… you'd be living above your means if you bought one… once you've paid off your student loans and are contributing an appropriate amount to a retirement plan, you can start saving money for a new vehicle… preferably a decent used one…

eta: i see that you're contributing to a "state retirement account"… you didn't say how much… are you funding your own personal roth ira? if not, you should be…

eta: you're only putting 4k into retirement savings per year… you're woefully under-funding your retirement… and by the way, your retirement investments should make more than the 4-6% the student loans are costing you…

SumDude:
I believe in buying new. No prior problems, no need for repairs, warrantees, all the latest safety technology, and (hopefully) a very low interest rate for several years , and the vehicle will last 10 – 15 years. Paying $1,000 ($800?) a month on the student loan (babyboomer1001) sounds like a good plan. Just do not put a lot down, and then find yourself cash short.
babyboomer1001:
Weigh the interest you are paying on the outstanding loans against the interest you are earning on the savings. However, $22k should not take long to repay. Can you make monthly payments of $1,000 or more toward the loans?
Robt:
Save up 5000$
BUY a cash cars under 130k miles.
Saves you 5000$ yrly Easily.
seth:
no

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