Speculation on Paying Off Car Debt

One way that will help speed up the prcoess of saving and accumulating wealth is by paying off debt. Usually we have debt that are at interest rate higher than our saving or even investment account and as a result, we’re losing money that way (+inflation, +tax). Right now, my car loan is the only thing besides the student loan, which is at 4.25%. So my plan to “deal with” my car loan.

Sometimes this is not the easiest thing to do but realizing the benefits of how it’ll help to accumulate MORE wealth in the future really helps. As I’ve mentioned, my car, a Scion tC, was bought with a loan when I was still in school, at a rate of 6.15%. There is 12k remaining to be paid off, and I have made up my mind to pay it off this month. Ouch to my saving account! But like I said, realizing how I can save more in the future without the monthly payment and paying the loan interest helps. Another way to think about it is that I “automatically” make a 6.15% return of the 12k after-tax.

I know some may say that 6.15% rate is pretty low, and that I can have an investment account with a higher rate of return than 6.15% (remember, we have to calculate the return rate after tax here). And that is true and very do-able. However, one more thing we have to realize is that paying off debt not only has its monetary motivation. It also provides a joyous, positive sense of feeling to be freed of debt, and I can already picture the great feeling. Life is not just about money after all. Soon I can really call my car – my own :)