Hey everyone, I’ve got a car loan at 4.99% APR with $7k left to pay. I’d like to clear it in about two years, but I recently had a transmission failure. It’s getting fixed for a decent price, so my car should last, but I worry about it breaking down again before I finish paying off the loan. I don’t want to be stuck with two car payments if that happens.
Right now, my emergency fund covers about a month of expenses. Other than that, I have a 401k that I’m not contributing to at the moment, and no other savings or investments. My goal is to build my emergency fund to cover at least three months before worrying about anything else. But I’m also concerned about my car. What do you think?
Put your emergency fund in a high-yield savings account. Your loan interest isn’t super high, so you can make extra payments if needed, but having savings gives you more flexibility.
Darwin said:
Put your emergency fund in a high-yield savings account. Your loan interest isn’t super high, so you can make extra payments if needed, but having savings gives you more flexibility.
What’s a good interest rate for a high-yield savings account?
@Maeve
Look for something around 4% or higher. Rates have been dropping lately, but as long as it’s competitive, you’ll be fine. Don’t overthink it—just pick a reputable bank and start saving.
It makes sense to build your emergency fund first. Once you send money to a loan, you can’t get it back if you need it. If your employer offers a 401k match, contributing at least enough to get that match would be smart too.
A lot of people follow a flowchart for financial priorities, but the main idea is to have savings before aggressively paying off debt. If an emergency happens, having cash on hand is better than scrambling for money.
Maeve said:
Not sure if this changes anything, but I’m 24 and just starting out in my career. Retirement is still a long way off for me.
You can split up your car payment to match your paychecks—if you get paid every two weeks, you’ll make 26 payments a year instead of 12, which helps pay it off faster without feeling like a big extra expense.
Maeve said:
Not sure if this changes anything, but I’m 24 and just starting out in my career. Retirement is still a long way off for me.
If your 401k offers a match, contribute at least enough to get the full match. It’s part of your compensation, and missing out on it is like leaving free money on the table. The earlier you invest, the more it grows over time.
Maeve said:
Not sure if this changes anything, but I’m 24 and just starting out in my career. Retirement is still a long way off for me.
If your job is stable and you don’t expect big unexpected expenses, you could focus more on the car loan. If things are a little uncertain, then prioritize building your emergency fund first.
Emergency fund should be your top priority. A car loan at 4.99% isn’t terrible, and having cash saved up will help you avoid bigger financial problems later.
Also, if your employer offers a 401k match, you should contribute enough to get that match—it’s one of the best ways to grow your money over time. Once your emergency fund is solid, you can focus on paying off the car loan faster.
You could do both—put more towards savings while making extra car payments when possible. The goal should be to have at least six months of expenses saved up, then focus on paying off debts and saving for your next car.