Q: Should I use personal savings to pay off my car? I am retired with a military pension and social security. My income exceeds my expenses and I have no other debt other than my mortgage. I owe almost two more years of $500 car payments. I plan to put the car payment money into savings if i pay it off. Please advise and thank you in advance for your time.
A: Good question.
It is difficult for us to answer with certainty without knowing your situation more completely and fully. A general rule of thumb for us is if you have more than your required emergency cash reserves (6 months is typically suggested) and you are earning a rate of return less than the interest on your car payment, then it might be prudent to pay it off and begin saving in a higher interest-bearing account after it is paid.