This month, my monthly cash flow received a nice boost. Finally, after 60 long months, I made my final payment on this oh-so-beautiful, dented (that I’m never going to fix!), black Toyota Camry! Now, I join Lanny in the “I’ve paid off my auto loan” club!
The feeling when I made the final auto loan payment
Last year, after purchase my wife’s new car and our first house, I felt a little overwhelmed with debt and our standard monthly cash outflows. It sucked seeing so much of our hard-earned cash fly out the door to banks and other financial institutions. I became so aggregated that I vented in the form of a blog post, which ultimately led to me calling myself out to reduce my debt load. I learned that I FREAKING HATE having dent and thatiff I wanted to be financially free, there was no way I could maintain the level of debt payments I was making. It made the hurdle to jump that much higher. I decided to attack my debt, starting with my highest interest rate debt first. The lowest of which were those pesky auto loans
Since I wrote the article, a lot has changed. We had to make an adjustment to my wife’s student loan payment plan based on her new career (Yay!). Then, we also decided to contribute every extra dollar we earn by side hustling to paying-down our mortgage. Both were welcomed adjustments to our debt-paydown plan.
This article is about my auto loan though, not about our student loan debt and mortgage. You are all probably thinking that we are tired of hearing you complain about those items. Well, you’re right, I”ll move onto the auto loan now. At the time I wrote my debt article in the fall, I mentioned that I had 8 monthly payments left for $363 dollars. Since this was the shortest debt, why didn’t I attack this loan first to reduce my cash outflow? Well, the interest rate was 0% and I couldn’t think of one reason to pay this loan off early. So I decided to let this loan slowly pay-down until my principal balance hit $0.
Usually we are writing about some new strategy or way we hustled to pay our loans off early. Lanny, for example, decided to allocate extra payments to pay-off his auto learn earlier. But for me, that’s not the case. Rather, I simply reach the end of the line and made my last payment. My balance trickled down to zero finally after 60 excruciating months! Just like that…it was over. My car loan was over with! BOOM
I asked myself how I felt after seeing that last $363 payment leave my checking account. It felt great, but I wanted to have some fun with this. One of my favorite shows back in the day was The Office. The amount of times the show was quoted in my college house with my roommates was just incredible. After all, who couldn’t love the show. When I saw my auto loan reach zero, I felt like Michael Scott (Steve Carrell’s character for those of you aren’t familiar) felt when his arch-nemesis in Human Resources Toby decided to quit. This is hands-down my favorite office episode. On his last day, he threw a big party and sang him a few parody songs. So in my mind, I kept on singing “Goodbye Auto Loan!” This was how excited I was after that last payment.
All jokes aside and now that the fun is over, I asked myself my favorite question….now what? What should I do with the extra cash flow that I now have each month? I feel like I discussed this answer at length over the last few months. With interest rates rising, paying off my low, fixed rate mortgage will not be the most efficient use of this capital. I discussed this at length in my side hustle income post linked earlier. So for now, I think the answer is simple to this one. I am going to use the extra capital to continue to invest and grow my passive income. For now, until I reach a different crossroads ,the answer is as simple as that. I will increase the amount of each stock purchase I make by $363 (assuming I make one purchase a month). Assuming a 3% average dividend yield, that would add an extra $10.89 of forward dividend income. Now, instead of a monthly cash outflow, I will turn this $363 each month into an income producing asset. That’s the name of the game right there!
What are your thoughts about my plan? When you paid off your auto loan, what did you do with the extra cash flow each month? Would you use the cash to pay-down my mortgage instead?