My former self is shocked at my current self's comfort with having consumer debt. Shocked, I tell you, and probably a little bit outraged. I am accustomed to thinking of myself as debt free, but I haven't been for a while, and probably never really will be again.
We have a mortgage. And a car loan. (And I use credit cards all the time, as my main payment method for everything, but we still pay those off in full every month.)
With my new income, we have the ability to pay off our car loan this year, but we probably won't.
What?! My former self is aghast.
I know. It goes against a lot of what I've said in the past. And what a lot of financial experts say. But I promise, we've done the math and it makes more sense for us to save right now. Here's why:
1. Our car loan is cheap. 1.9%, which made the finance guy do a double take - he hadn't seen a rate that low in months. Paying off the loan in full now vs over time as scheduled is a difference of just under $700.
2. We have non-recurring opportunities that we can put money into right now. Roth IRAs and HSAs have a limit on how much can be put into them each year, and if that deadline passes, you can never go back. Putting $5,000 in a Roth now to earn money tax-free until retirement will definitely earn me back more than the $700 I'd save paying off the car now!
3. Once we manage to fully fund Roths and the HSA, we plan to build our emergency fund back up. We've been treating our Roths as an extension of our emergency fund, but we'd like to have a very nice big cushion in the bank. We have a small cushion now, certainly enough to absorb any of the kinds of emergencies we've faced as homeowners, but we'd like to build that up more before we start funneling money against that car loan.
Truthfully, we'll probably pay the loan off early. With my additional income, we're on track to be on top of these other things in a year or so, with still 3+ years left on the car loan, and at that point, obviously that will be our big focus. It's hard to convince the old LMM of this, but it really does make a little more financial sense to wait on it.