Debt Paydown Plan: Paying off the Auto Loan in 6 Months

The plan is done and set in place!  I am happy to finally get on the right feet and automate the plan as well.

The Auto Loan Payoff plan

The details of the plan, eh?  Well, it will be very easy.  I didn’t want to deploy all of my capital, as you can tell from my article on what to do with my idle cash a bit ago.  However, I wanted to use my capital to put me in a better situation financially and sooner, than later, of course.  I mean, c’mon – we are on this pursuit of removing as many shackles as we can, and this was one set of shackles that I didn’t want to have on my wrists anymore!

I had, after my April payment, approximately $6,105 left on the auto loan.  I knew for sure I wanted to be rid of the loan by end of December.  However, I didn’t want to zap up all of the capital right away either.  Instead, what I plan on doing is allocating extra payments evenly over 6 months and by the end of September, this loan is… OUTTTTA HERE!  This preserves my capital for other opportunities and I owe a painful amount of money for my local taxes that just came due.  The capital I’ll have remaining going forward should allow for investment purchases, mortgage debt paydowns when necessary or other investment ventures.

Reasons I am paying off my auto loan

1.) I own a Honda Accord and it currently has 99,600 miles on it.  Still a baby in my eyes and I plan on driving this car for the next 150,000+ miles if I am able to.  I have reduced my average miles driven per month due to introducing rental cars into my traveling for work (this is reimbursable), which is helping in prolonging the life of my car.  Further, since this is a Honda, it does have a higher chance of lasting longer, as long as I keep up with routine maintenance, i.e. oil changes, breaks & tires.  My wonderful girlfriend has helped, as well, in driving more to my house occasionally, now that we’ve been together for quite some time – I let my chivalr-ic guard down and am okay with her doing this!  I am estimating now around 9-10k miles going forward, so if we do my math – we are talking 10+ years remaining.  Let’s go baby Hond-ooni!!

2.) This will open up, at a minimum, $284 in cash flow extra per month.  I would have had to wait until February of 2019 to achieve this cash flow, therefore, why not now?  If this loan was bigger – I may have second thoughts to it, but an extra $284 per month would be nice, psychologically, going forward.  This is just the auto loan payment.  Once paid off, I plan on contacting my insurance agent to tell them my car is no longer-financed and is owned by me.  I’ll have to see if this has any impact, as I know it may not, because I already have high deductibles.  Will be worth a shot, regardless.

3.) One less thing.  I know this is ridiculous but it is one less thing to worry about.  One less person placing their hand in the financial freedom jar, it’ll be gone.  One less bank I have to log into to see if my payment actually made it there – I know, I’m OCD.  However, just the sheer clicking of the button – “remove” from my favorite bar, on my web browser, will be awesome.  One less debt on the balance sheet/net worth statement.

4.) Slight interest savings.  Though my interest rate is very low at 2.29% – yes, very low on a used 2010 Honda Accord – I will save around ~$180+ in interest costs.  Not anything that will push me over the edge to financial freedom, but is another benefit to getting rid of the loan.

5.) Depreciating Asset.  The car is depreciating, typically, each month that I own it.  It irks me even knowing I’ve been paying money on something that goes down in value and since I don’t drive for a destination service provider – provides no incoming cash flow to me.  Some may argue – if you didn’t own a car, you couldn’t be in the profession you are in.  I laugh at that, as it’s not even close to being true.  However, I digress.  The car is depreciating and I’m tired of making monthly payments on that.

6.) Does not add much value/pleasure to my life, currently.  The car, lately, does not add any fun/flavor to my life.  I rarely take it out for a summer drive to take in the breeze or take it out just to calm my mind.  I know this is due to the countless number of hours and miles I have driven for work (I am talking – 8 hours in a day, the occasional 19 hours in a car in two days or just your 3.5 hour roundtrip commutes to clients), has made me feel disgusted with driving.  Similar to my article – cut back on the things that don’t add value.  Sadly, I’m not counting it out, but I am saying screw you to the debt that is tangled with something that doesn’t add much value currently.

Paying off the car summary

In the end, I am saving interest, time for checking on my loan, will slightly improve the net worth statement and will improve my cash flow “feel”.   I am looking forward to improving my net income margin on my net worth, as one liability that doesn’t produce cash flow will be removed!  I am also really looking forward to the psychological effect of not having an auto loan payment, as for the last 3 years almost, I’ve had one.  Get that crap out of here!  It’ll be great knowing that $284 per month will be available sooner than later.

What do you guys think?  Smart to pay off my Hondooni?  How far has your Honda Accord been able to drive you?  Always curious to see how many miles others have been able to rack up over time!  Tough place to use capital, but this isn’t the worst move by any means and may not be a home run either, but it puts me in a better financial situation, regardless.  Would love to hear your feedback.  Appreciate you stopping by to see my elbow drop this debt!  Talk soon and Go Cavs!

-Lanny

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23 thoughts on “Debt Paydown Plan: Paying off the Auto Loan in 6 Months

  1. I am in a similar situation. However, my current interest rate is 1.9%. If I invested the amount in Vanguard Total Bond Market ETF I receive 2.48% in yield. So, by not paying of my auto loan I can get 0.58% extra :-).

    • Div Geek –

      I like it I like it. Yep, for me I think it’s really about the one-less thing and opening up the cash flow, though I could be using the cash flow for yield, per se. I am looking forward to freeing one liability on the balance sheet to rid of a non-income producing equipment. Pumped!

      -Lanny

  2. Smart choice. I hear you on the psychological effect it could have. Very curious how that will work out for you.

    We actually sold our car today… yes the same car we wanted to sell 6 months ago. Our other car (the old one) broke down last week. So currently we are in the situation we own 2, but can drive none. The irony.
    We had no loan though. So, the money we got from the sale we will use directly to buy another. And still have a lot left over 🙂

    • Divnomics –

      Congrats on the sale of the vehicle and pumped you have cash left over, that’s what it’s about! Also – bummer on the car situation in general, never a fun time when it breaks down, never fun at all. Hope it goes well and nice job making some moves.

      -Lanny

  3. I owned a ’96 Accord and sold it in late ’11. Problems with the car were not imminent, but i didn’t want to run it into the ground. The last couple years of its life would be more trouble /cost than it was worth– and it would have no resale value.
    Nonetheless, the new owner got another 5 years out of it before it died on him last year. He drives a lot more than i do, too, so i think you’ll have reliable transport for quite some time. Good luck!

    • MSF –

      Thank you very much! I know it’s all a good plan, and in time, this will be the close to the chapter on the auto loan. And let’s just say – I’d rather the chapter be shorter, than longer!

      -Lanny

  4. Paid off my Tacoma a couple months back when it got down to below $8k, I couldn’t hold off, I just did it. Same with the student loans when they got to below $15k, just whacked ’em. I completely agree with you, having one less thing to worry about on a monthly basis was just worth it to me. It’s put a wrench in some of my dividend plans, but oh well, I feel better without those weights on my shoulders.

    The Tacoma only has about 33k miles on it, 4.5 years in to buying it, it’s gonna last me forevvvverrrrr. (And still hopefully have some residual after forever)

    • Stacker –

      WOW,, way less than $9k per year, phenomenal. Also – huge that you are opening up your future cash flow potential for investments when stocks start to come back to reality. Nice work and I bet the Tacoma will last, on my estimation, 25 years at least!

      -Lanny

  5. I did the same thing late last year. Paid extra on the car loan to get rid of the loan. I hate loans for something like the car so it was nice to get rid of and free up capital for other purchases.

  6. I like your philosophy on keeping the car at least another 150k. Hondas are great cars, and it shouldn’t be a major problem to do that.
    As far as paying off the loan, I think I would get it done asap. Just hate owing people (banks) money.

    • Bean Counter –

      Exactly. Getting rid of their hands in my jar and saving a bit of interest to boot. A lot of pros here and I’m looking forward to it and keeping the car for quite some time!

      -Lanny

  7. Nice plan. As long as you keep regular maintenance up on the car and nothing major breaks, you should be able to add up quite a few miles on it before its time. And every month/ year after it’s paid off, you are basically driving for free (minus gas and such). Which will free up a lot of capital for future purchases.

    • Daze –

      I love the way that it sounds – I seriously will not have a loan on a vehicle again, and if I do, it will be very short lived. It will cost me gas, insurance and maintenance, but for where I live, it’s hard not to have a vehicle.

      Looking forward to the future capital!

      -Lanny

  8. Lanny,
    I’m in a similar boat, but my car is newer, but I get the idea. Getting that monkey off the back probably only saves a slight bit in terms of interest vs what you could generate with investing that extra money. However, punching that monkey in the face is highly satisfying. Good luck beating up the that debt, though appears luck will have little to do with this.
    – Gremlin

  9. Congrats on eliminating a payment. Though I might revisit the plan on a month to month basis. Three or four months in you may just want to finish it off, if it doesn’t appear you are going to need the money. Especially if the money comes from an emergency fund that you can dip into slightly and slowly replenish interest free.

    • Seedling –

      Exactly, if no purchases occur in the market, I can see me taking the big bat out and whacking this one… outta here! Appreciate it and let us know when you re-visit the topic.

      -Lanny

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