more cash flow? or pay off car...
 

I have been paying about $500 for my car for the last year and a half or so. My payment is $219. I owe about 5k left and the interest rate is 4.99%. I'm sick of always feeling low on funds, but I'm glad my car is getting paid off faster. I can probably afford to pay 700-800 on the car but then I'd really have to live frugally. What should I do?

A. pay the $219/mo and live the rock star lifestyle but pay off the car over 2 years.
B. continue to pay $500/mo and live okay and pay it off in 10 months.
C. pay $800/mo and pay it off in 6-7 months and get the nuse from around my neck and breathe easy for a while.

what are your thoughts?!

THere are a lot of factors you don't explain, but I might be tempted to pay $219 a month and put the other $281 in a mutual fund, especially if you are young.

Btw, please tell me where one can live the rock star lifestyle for only $281 a month!

As Jason Giambi once said:

"Hit like an all star, party like a rock star and pound like a porn star"

At that interest rate you're not hurting yourself by taking the 2 years to pay it off. As Creekster said, you could put the other $300 in a mutual fund each month. My personal preference is to be free of consumer debt so I'd pay it off on your 10 month plan. I think going to the 800/month option would be excessive especially if you are unable to put anything in your savings under that plan.

Pay the damn thing off. You are already used to having to scrimp what is another six months. Then you can party some, save some into that mutual fund. Six months worth of mutual fund head start is not going to seriously disadvantage you in terms of compund interest. Besides having a debt paid off is worth a little in terms of piece of mind.

That's the best advice you're going get.

Pay it off as quickley as possible. We now have a car payment after 5 years of no payment on a van that went into the shop once in 11 years.

The new van is nice and had there been a way to stick with the older one a little longer we would've, rather than have to make that payment which truly is like boulder chained to an ankle.

Here's my thinking: It's like playing a little game with yourself. As Steel says, at 5% you're not getting hurt badly on the interest, so you really aren't going to be far ahead by paying it off or by not paying it off or by spliiting with a fund. But most people aren't that disciplined to save, so if you are already able to do $500 a montrh, then just keep doing it but put siome in the Mutual fuind. THen when the car is paid off, you can treat yourself with the extra money in your budget but keep saving. Either way, saving should be the focus. Let me tell you that if I could go back and do anything over zgain financially, it would be to save just a little more than I did. Not a lot, just some, but to do it earlier and regularly. Savings is power as you reach middle age. You may not believe me now, but when you get there you will know exactly what I mean.

Maybe he's more referring to the rock stars along the lines of Winger or Skid Row of 80's fame, busying their schedules with playing at the Sanpete county fair and cousin Vinny's Bar Mitzva.

I am all with you on this. I just think that a 6 month time horizon is not worth the piece of mind that you would get.

I envy you that you have had the luxury to wish that you had more savings younger. Shortly after I had started saving and investing for the long term a substantial portion was wiped out by the internet/tachnology bubble. And I did not even get the joy of daytrading or even owning internet stocks, but the mutual funds I owned got hammered. So, paradoxically I am one of the rare people who can say, "i wish I had not invested so much when I was young." It was a hard way to learn a valuable lesson.