Your opinions on a financial decision...?

FourAM

FourAM

Cathlete
My DH and I work together in the construction business and of course things get slow sometimes. And of course, if he is not working I am not working...
Right now though ,things are really good. My question has to do with our truck. We want to pay it off and be done with it and with this job that we are on we probably can but it would take alot of scrimping...but it is possible. But my father-in-law thinks we should save the money and just pay the minimum. But I think if we pay it off then we have very few bills (just the necessities) and we would be in a better position if things did get bad.
So what do you think?

Any opions are appreciated:)
:)Rachel:)
 
I don't get why your FIL says that. I mean, I'm sure there is a reason, but I like your way so much better!!! You never know what is coming so why not rest easier knowing that no matter what you can always sell your truck?! ;)
 
Rachel,
I'm a small-business owner myself. I suggest you talk to your accountant about the possible financial implications of paying it off -- especially if it's paid for by your business. There may be an advantage to keeping the loan going.

Good luck!
 
Depends. Is the loan interest higher than the interest you would get if you banked the money. If so, pay it off. If the loan is zero(my car loans have been), or very close to that, then keep the loan, and bank the money.
 
Pay off everything you have the means to pay off. Take it from someone who didn't and deeply regrets it now. When this is all over (both mine and my government's economic crises) I'll never use credit again. I'll work a ton of overtime and save for everything I want. A hard lesson I wish I'd learned sooner. You got the cash? Pay it off!
 
The rule of thumb is that if you're paying more interest on the truck financing then you are earning on your other investments, pay off the loan. So if your financing rate is higher than what you're earning, which is likely, you're better off paying off the truck (unless you have 0% financing, which is sometimes the case). It's not true that no debt is always best. It's that no high-interest debt is best. Of course, if you think there may come a time when you can't make the payments, you're better off paying while you can.
 
Last edited:
I'll throw more confusion in here. If paying it off means depleting your cash on hand, then I wouldn't pay it off completely. Maybe figure out a middle ground where you can pay it off faster than the minimum, but in length of time that doesn't have you completely scrimping.

A lack of accessible cash, even for a little while, would make me very nervous.
 
I was going to go near what Gayle said and ask if you have the cash to spare. If you are in construction and many times do not have income, maybe having the "standard" 6 months in the bank first would be the best idea.

Otherwise agree with the others - do what is the best financially - if the truck loan is more than you could earn, go for it !

It is nice to be debt free ! Can't wait to pay off the mortgage ! :p I am with you on not having too much debt out there.
 
My first instinct is that you should pay it off and then on go forward basis redirect the cash which would have gone to monthly payments into a savings account.

Zero interest rate loans don't exist, and before I get flamed by all the people who claim to have one, I mean they aren't real. If you have a zero interest loan it means you could have negotiated for a cheaper price if you had paid cash up front. The "zero" interest means the price of the car (Z) is really the amount you financed (X) minus the interest (Y). (if you paid $100 (X) and the going interest rate is 8% that means you paid $8 interest (Y) and the car cost $92 (Z) on your $100 "zero interest" loan. Believe me, the lender is paying income taxes on the interest revenue from your "zero interest" loan.

But I digress.

Sunshine is right. It is way more important that you have your emergency fund set up and fully funded then that the truck gets paid off. The usual wisdom is that you should have 6 months worth of income in a savings. Generally, 30 - 60 days in a money market, which you can access quickly, then the rest in 60 - 90 day CDs with staggered renew dates so that you can earn a higher rate of interest and cash them out if you start getting low on the cash reserves in the money markets.

You should only pay off the truck if you can do it from savings outside of this reserve. If you have to dip into these reserves to pay off the truck, you can't afford to pay off the truck.

Considering the state of the construction industry right now, it might be wiser to be overly conservative and sock away a full year's worth of income.

I'm sure your very good with managing your money, but if you feel like you could do it better or your trying but feel like it isn't going as well as you think it should, then I highly recommend a computer program called "You Need a Budget" (see Amazon) to anyone who needs to gain control of their finances and rebuild their personal equity (and by personal equity I mean control your debt and rebuild your savings). It is an excellant tool for building a budget and for measuring your success at meeting the budget. (Quicken and Microsoft Money are money management tools, which will tell you where your money went, but don't have budgeting capabilities. The best they can do is a trend analysis which isn't really the same thing).
 
Go with your gut, pay off the truck.

As to the old saws about "debt is good" and "it's better to have a loan and have the cash in an investment vehicle earning interest"; both are in my opinion hogwash.

The Dow tanked yesterday to the tune of 777 points. Very few firms are meeting their earnings projections and interest rates on savings are less then 1/2 a percent. The idea that an average person is going to be able to leverage debt so they can have investment vehicles is just a rationalization to get you to buy more house or a bigger car. (Unless your rich enough to live off your investment income, which I'm guessing your not.)

A bird in the hand is worth more then two in the bush.

A dollar today is worth more then the promise of a dollar tomorrow.

Pay off the truck as soon as you can with out cracking your emergency fund. That's the only equation you need.
 
Last edited:
You must log in or register to reply here.

Our Newsletter

Get awesome content delivered straight to your inbox.

Top