If you’ve got a good emergency fund, I’d suggest two options: either pay off one car with the $2,500 a month, then roll those payments into the other loan, or split the money—half for investments, half for the car loans.
@Zion
Thanks, that’s helpful!
If you can earn more than 6.3% and 6.75% with investments, I’d invest instead.
At those interest rates, paying off the loans is the better choice. The only exception might be if you haven’t maxed out tax-advantaged accounts like a 401k. Otherwise, it’s better to take the guaranteed 6%+ return from paying down the debt.
@Bao
Good point! Our 401ks are TSPs (military), and they’re not maxed. Maybe we’ll work on maxing those and still put a little extra towards the cars.
Focus on paying off the debt before investing.
Pay off the debt first. If you don’t really need the $45k car, consider selling it to get rid of the loan faster.
Save first, then deal with the car loans.
How have your investments done over the last 5 years? If the return is less than 7%, I’d put the money towards the loans.
Vail said:
How have your investments done over the last 5 years? If the return is less than 7%, I’d put the money towards the loans.
We’ve averaged around 10-12% annually, but it’s hard to predict the future with so much uncertainty. These last few years don’t seem typical for the stock market.
@Ash
Actually, the last few years have been pretty normal in terms of returns. Check out the historical data on S&P 500 returns.
Ben said:
@Ash
Actually, the last few years have been pretty normal in terms of returns. Check out the historical data on S&P 500 returns.
That’s interesting! I thought the gains recently were much higher than usual.
@Ash
If you’re losing sleep over this decision, just go with your gut.
Always try to pay off debt first.
Worst case, start by paying off the 6.75% loan first. But if your investments are earning more than 7%, you could invest instead. Or, split the difference and pay down debt while still investing, whatever feels most comfortable.