Why I Decided to Pay Off My Auto Loan Early

Why I Decided to Pay Off My Auto Loan Early

While this decision may often come down to personal preference, many would argue that it’s better to invest extra money and pay debt off on the normal schedule if the math is in favor of investing.  In other words, if you’re likely to make more by investing than you’d lose to debt repayment interest, then investing will put you ahead in the long run.

Playing the Percentages

Many personal finance pundits argue that you should play the percentages by considering whether debt payoff or investing will put you ahead.  In other words, you should invest rather than put extra toward debt repayment when the interest rates are in favor of investing. Here’s why I decided to pay off my auto loan early.

Peace of Mind

The biggest benefit to paying off my auto loan early was the peace of mind I have from being free of consumer debt. Debt has a psychological impact whether you’re aware of it or not. Studies show that debt tends to weigh on your mind, and that paying it off reduces your stress and improves your overall mental health.

From Liability to Asset

Another reason why I decided to pay off my auto loan early was so that I could turn a liability into an asset before it lost all its worth.  Cars are depreciating assets that lose their value very quickly. Although the biggest hits come in the first several years of the life of the vehicle, all cars continue to depreciate as they age whether they’re driven regularly or not.

Overall Financial Impact

Aside from peace of mind and the desire to turn a depreciating liability into an asset, I also wanted to reap the benefits to my overall financial health that comes with being free of consumer debt. No matter the type, all debt represents a liability that lessens your net worth and reduces your cash flow.

Free Up More for Investing

Yet another reason why I wanted to pay off my auto loan early was so I could free up more money for investing.  I’ve been steadily increasing my income over the past several years along with learning more about investing. The past year has seen me open a 403(b), a Roth IRA, and a brokerage account.

I Was Investing at the Same Time

Wait, didn’t I just say I wouldn’t have paid extra into investments because I just started?  That was true when I took the loan out, as I was only paying into my pension. However, I opened 2 of my 3 investment accounts a little over a year ago, meaning I started investing a year into my auto loan.

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