Hey there! As you all know, I did my taxes on Sunday. I have roughly $1,300 coming my way. I’ve been debating what to do with this money. As most of you know, the majority of people spend their refund on pricey items or even blow the money before they have it. I do not believe this is an option for me. For me, it is either investments or debt.
Before I was fired, I had decided to put an extra $100 a month toward my car, dropping the loan by more than a full year. I put a halt on that while handling my job loss. My current car payment is $258.79 a month for five years. I was also maxing out my Roth by putting in $458.33 each month, which has since been lowered to $100.
Now lets look at the perks of either option:
So far this year, I have contributed $1,374.99 to my Roth. I’ll put in a further $900 throughout the year with my $100 contribution each month. This means I need $3,225.01 to max it for the year. If I put the $1,337 from my tax return toward it, I’ll only need $1,888.01. If I up my monthly contribution to $309.78, I can max my Roth for the first time ever. Not only that, it’ll have roughly the next 40 years to compound (potentially $12,000!-if compounded annually at 5.59%). Doesn’t that sound great?
If I were to pay off my car right now, I would need to shell out $12,037.41. I currently owe $11,997.10 in principle and have 53 payments left and have put a total of $1,911.53 toward it so far (if you want to exclude the $1,500 I put down when purchasing the vehicle). I financed a total of $13,502.64 at a 5.59% interest rate. I am considering refinancing once I’m at a year and have more credit, but have yet to decide. The total of all my payments and that interest rate will come to roughly $15,500. If I put the $1,337 toward it in addition to the $100 a month, I will pay it off to the tune of $14,500.
Now, let’s think about this emotionally for one second. I know, emotions, in personal finance? What am I thinking?
You know what $17,000 is? $17,000 is what my car would total if I just paid on time over time with no extra payments. You know what $17,000 could’ve been? Three years at my college, a down payment for a house, a snazzy vacation, a bathroom renovation, three years of maxed out Roths. But instead, $17,000 is my car. It is this crushing weight that makes it hard to breathe. I’m starting to wonder how people handle mortgages. Maybe living with the debt would be a good lesson, potentially paying it off would be, too.
Additionally, the likelihood of me maxing my Roth out this year is incredibly low at this point. At my current rate of pay and hours, I will bring home roughly $1,300 per month, at the high end. While I do believe it would be possible, I don’t believe it would be comfortable. I don’t think I would be able to take the opportunities I need to take for my health or to prepare for a stable near to mid future.
I am currently 21 and don’t know where I’ll be in six months, much less 40 years. This is something that I can turn into a habit that will bleed into future purchases as well. This year, I’m trying to live intentionally. Paying off my debt has been one way of doing this and so has building habits. With this move, I’ll be intentional about paying off my car early and be able to afford moving toward my goals of who I want to be as a person. I think I’ll do it, but, first, I want to hear from you.
What would you do in this situation? Do you have a similar thing going on?