Will You Walk The Road Alone?

The road to financial freedom is a lonely road, and sometimes it's a road one has to walk alone.

Our family grew significantly last year with the arrival of twins, so my husband and I knew that we could no longer evade the inevitable: we were going to have to get a minivan. With three small children and a dog, we could no longer afford the luxury of our mid-sized SUV; we needed more space, and we needed it ASAP. Many young couples like ourselves would have used such a family expansion as an excuse to take on more debt, rushing to get a brand new minivan in the name of necessity. We, however, are on the road to debt freedom, so financing a new vehicle was out of the question.

My husband found a very nice used minivan at a local dealership that he felt was reasonably priced and possibly worth more than what the dealer was asking. The only drawback was that it cost more than what we had in our savings. In order to get what we wanted, we would have to save very aggressively in addition to paying all of our current bills! Needless to say, it wasn't much fun at all.

There was no take-out, no movie night, and no clothes shopping for a while. Delicious wheat bread was replaced with not-so-appealing white. Some of our friends even thought that we had come upon hard times. We weren't paupers, we just conserved in every way possible, and those who are still in a debt-controlled lifestyle just didn't understand. However, when we had finished suffering for a little while, we were able to get what we needed without owing a dime. The van is gorgeous, and those who scoffed at our penny pinching have all since bitten their tongues. The best feeling, however, was not the feeling that we had received the fruits of our labor or even that we had done what others would not or could not do.

The best feeling was the freedom of knowing that we owned it - ownership is the strength that keeps us on this lonely road.

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No More Car Payments

For some months now, I had been thinking of dumping some cash into a certificate of deposit (CD) because the Fed is currently in a cycle of cutting interest rates. The Fed has been cutting since mid-September of last year, and when the Fed cuts the benchmark Fed Funds Target Rate, yields on CD's and money market accounts drop as well. About 3 months ago, when I first got the urge to invest in a CD, the annual percentage yield (APY) on a 12 month CD at my credit union was 4.16%. Today, the yield is 3.6%, and since the Fed will be lowering rates some more, the yield will only head south in the coming months.

But then I thought about my car loan, on which I'm paying an even 6.00% annual percentage rate (APR). Does it make sense to invest in a CD paying less than 4% APY, when I'm paying 6% APR on my car loan? No, not really, especially because a car is a depreciating asset. The resale value of my car holds up very, very well, which I was able to verify by checking out prices on eBay Motors, and looking up estimates on Kelly Blue Book and NADA for the same make and model. But a car that's accumulating miles in the Northeast USA, where there's plenty of car-corroding salt and sand, will always depreciate over time, so my baby is still losing value, though at a relatively slow pace. So, despite the pleasant fact that the realistic value of my ride was higher than the balance on my car note, it became very clear to me (don't you just love clarity?) that the right thing to do was use my spare cash to payoff the loan, and invest in a CD later.

So, last Wednesday, I logged onto the Capital One website to get a payoff quote for my auto loan. On Thursday morning, I visited my local post office and mailed, via overnight express, a check for a tad over $9,000. Today, I was able to login to the Capital One site and confirm that the payment was received. Yahoo. Feels pretty good: I own a great car, and I no longer have car payments (I was paying around $349 per month.)

Actually, if the interest-rate environment isn't looking good in a few months, I may opt to payoff my student loan instead of getting a CD. I would need another $10,000 or so to pull that off, so it won't be an easy decision. The only positive thing about student loan debt: the interest is tax deductible (at least it has been; it may not be anymore since my balance is relatively low now.) I think the urge to payoff my student loan will increase as the months pass, because it's now the only debt I have where I am paying interest, and I'm really tired of paying interest!

Will my car loan payoff boost my credit score? Maybe a little. I'll report back as soon as my FICO score is updated.

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