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Should I Pay Off My Car Payement or Student Loans First?

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Should I Pay Off My Car Payement or Student Loans First?

Q: I’m driving a 10-year-old car with 195,000 miles on it. The car needs $1,500 in repairs, and it’s worth $5,000. I have $40,000 in cash saved, $40,000 in investments, and I make $80,000 a year. I also have $15,000 in student loan debt, but the only other thing I owe on is my house. Should I pay to repair the car or buy something else for $15,000?

 

Dave: If you wrote a $15,000 check for a newer car and wrote a $15,000 check for the student loans, it would leave you with $10,000. I wouldn’t buy a $15,000 car in your situation. I’d buy a $10,000 car. You could sell your current car for around $3,500 if it needs repairs, combine that with your money and get a $13,500 car. Then, you could write a check and pay off the student loan.

With no car payment, no student loan payment and a good car, you can really lean into your budget. Think about it. You’d have no debt except for your home, and you could rebuild your savings in a hurry and be in really great shape in about six months. Plus, you’d have $15,000 sitting there in the meantime!

Dave Ramsey Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations and The Dave Ramsey Channel on iHeart Radio. Follow Ramsey on Twitter at @DaveRamsey and on the web at www.daveramsey.com.
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