All my debt in the world…

Last month I shared that I decided to refinance my auto loan with PenFed. While I still love PenFed, the process for refinancing my auto loan was a bit cumbersome and seemed to take forever. However, US Bank, my previous auto loan holder, finally processed the payoff payment…

And, on the PenFed side of things…

…all my debt in the world is now located in one place. While I like the simplicity this adds to my life (one less place to log in each month) a part of me now feels “itchy” about seeing that relatively low auto loan balance in the same portal as my much larger student loan*. Perhaps I should not change my financial goal from “less than $60K in student loan debt” to “less than $50K student loan debt” this year and should instead keep the under $60k goal and add paying off my auto loan? While my auto loan is only at 2.39% compared to my student loan’s 3.50% interest rate, it would eliminate a $300.00 payment each month. In addition to further reducing my fixed expenses, it would also lower my debt-to-income ratio… Thoughts?

*I used Paint3D to delete my account numbers and student loan balance from this photo. I feel like my student loan balance, and how much I have been able to pay off, is the only thing that keeps my blog interesting from month to month.

I refinanced.

I know, I know, clickbait if there ever were any…

Having recently read DDSW’s post on getting below $80,000.00 in student loan debt, after making it to that milestone myself, it shouldn’t be surprising that despite a great relationship with my current student loan lender, PenFed, that refinancing is still on my mind. For the moment, however, I am talking about a refinance of a different kind. Today, I refinanced my auto loan.

Prior to refinancing, the terms for my auto loan with US Bank weren’t bad.

Despite a required minimum payment of $249.84, I have always made a $300.00 monthly payment because I have every intention of having all of my student and commercial debt paid before I turned 40. What I have found is that the stronger your financial position, the “less bad” your banking options generally are. So I figured, a little over a year later, with $30,000.00 less in student loan debt, and $25,000.00 in more income, and I could probably get an even better “less bad” deal. And I was right…with PenFed!

PenFed is consistently bombarding my email account with banking products, and while I generally ignore them, they finally enticed me to click with a “$150.00 rebate when you refinance your auto loan” email. Initially, I didn’t know how much sense it made to refinance. While 3.21% with US Bank isn’t amazing, it also isn’t “bad” for a used car and unless I could get PenFed’s rock bottom rate of 2.39%, I didn’t know how much I would save by refinancing. However, the more I thought about it, the more I acknowledged that any money saved is a reason to refinance and that my only reason for not refinancing was the minor inconvenience of the loan payoff process. So I applied.

And I got their rock bottom rate for used cars! A few hours later and I am still happy with my decision. Not only did I secure a better rate, my minimum payment is still less than what I usually pay, with a term that ends more than 9 months before my 40th birthday. Additionally, unlike with traditional student loan lenders, having my educational and auto loans with PenFed gives me an opportunity to build my relationship with a credit union, which could potentially be useful down the road…the $150.00 rebate isn’t bad either.

My car. My car debt.

Okay. Let’s talk about it.

(This is not a photo of my actual vehicle but a car with the same make, model, and color.)

One of the things I appreciate most about this blog is that I can be entirely transparent about my finances…if not entirely transparent about my identity. I find this not only allows me to talk about the financial stuff I wouldn’t really feel comfortable talking about elsewhere but it also means when I am in need of financial advice, you all have a much more informed perspective than any person in my “real” life. However, when I was looking at my potential budget for March (the first budget for which I will not have apartment associated costs) I realized I needed to share it with you all as things have changed quite a bit. I then realized some things, like my car payment, would come as a surprise because I have never discussed it.

For my September 2020 – Student Loan Balance(s) post, I removed my car lease debt line from my reporting. At the time, it didn’t feel like such a big deal. The focus of this blog has always been about my journey to pay back my student loans, and my relationship with them. However, in hindsight, I could also see how that might feel like I am trying to hide something from you all. That was never the case. I just hadn’t made up my mind about what I was going to do when my car lease ended in early January, and I had already flip flopped, several times on the issue. I just wanted time to think about it.

Well, like all things, late December finally arrived and I had to make a decision.

I currently owe $13,856.43 on my 2018 Ford Focus. And for now, I feel like it was the correct decision. To understand that decision, I will share a brief history of my car ownership as an adult.

2012 – I had returned to the U.S. after several years spent abroad and lived in a place where I needed a vehicle. I bought a used Prius for $10,000.00. The car had a little more than 50,000 miles on it and was a good deal. While I owned the car, I moved several times, finally settling back into a city in which I have previously lived, very close to my best friend.

2014-2015 – I was actually sharing the vehicle during this time with my best friend. She was paying me half the car payment to have access to my vehicle for 50% of the month. While this worked initially, over time, it became annoying, and she decided to buy her own car.

2015 – I took my friend to the dealership to purchase (lease) her vehicle. My friend explained all the reasons that she was deciding to lease vs. buy and at the time, it all sounded fairly convincing. What I should have done was left the dealership and reflected on how very different my friend’s and my financial situations were. But I didn’t do that. Instead, I leased my first vehicle.

2015-2017 – While in graduate school, I once again become hyper-focused on getting out of debt (this has happened at various points in my life) and was upset with the idea that I had a car lease as I now lived downtown, in a small city, with excellent public transportation. I investigated lease buyouts, selling the car and paying off the lease, etc. I just wanted out. However, at some point, I decided I was heading back to the East Coast and moving to a city where I would once again need a car.

2018 – My car lease was coming to an end and I had a decision to make. Unfortunately, I had waited to the VERY LAST MINUTE and my car lease was ending in two days. You would think this would be the moment where I took a step back, re-evaluated, and made a different decision that I did in 2015. Right? You would be wrong. Instead, I allowed myself to be again talked into getting a second car lease. Ugh.

December 2020 – So here I am. Once again, trying to decide what to do about my expiring car lease. Looking back, I realized that if I had kept that Prius I purchased in 2012, it would have been paid off in 2017. Or if I had purchased that car I leased in 2015, the car would have been paid off in 2021. This time I did take a moment and took a step back. I reasoned that whether I get into medical school or not (please, oh, please let me get in) I am likely to live in a place where I need a car for at least the next ten years. When I purchased my car lease in December, it had a little over 35,000 miles on it and was a 2018 model. There is no way I could have purchased a used car in that condition for $10,800.00.* And I like my car. So I decided to keep my car.

For now, I am happy with that decision.
_ _

A few other things… I plan to continue staying with my parents at least through June (more on that later), when my classes end. Unfortunately, this means my round-trip commute to campus in now much, much longer. My twice a week commute is about 35 miles each way, with traffic. Ouch. Gas prices this far south are still relatively reasonable so the difference between rent and increased fuel costs is almost negligible.

I still want this debt paid off prior to my debt free goal day or prior to my 40th birthday. To make that happen, I have increased my monthly car payment to $300.00. Given how low the interest rate is (lower than all but one of my student loans) it just doesn’t make sense to move it up any further in my debt payoff order.

And finally, the difference between my car’s purchase price and the loan amount shown on my statement above is state sales tax, dealer fees, registration, and an extended warranty. The extended warranty was the only “optional cost”, but covers all non-tire related electronic and mechanical failures, including lost keys, for eight years. I think this was a good choice.

The Ah-ha Moment – Revised 2020 Financial Goals

Yesterday, I received both the federal stimulus check (deposit) for $1200.00 and a $300.00 reimbursement check (deposit) from my employer. While I had already written a post about what I would do with the money when I received it (Note: I expected to receive it much, much later), as I sat there looking at my unusually flush mid-month bank balance, I began to obsessively review my debt repayment plan to make sure I was making the “right” decision. After some hemming and hawing, I put the entire $1500.00 towards Private Student Loan 1 (PSL1). With this payment, the Citi portion of PSL should be paid off of June 1st and the Discover portion of PSL1 should be paid off on August 1st.

While I sat on my couch filling out an application for a side-gig, I began to think about how my goals would need to be readjusted given that I wouldn’t be able to make the kind of money I had expected to make this summer from academic enrichment activities since University B, and the surrounding public school districts, announced that they would be cancelling in-person activities for the summer. As I began to do this, I also began to think about the upcoming months, through the end of the year, and what I could successfully achieve with respect to debt repayment. At some point, I was reminded that my car lease is ends in early January and that I need to either buy the lease out now ($12, 176.18), buy the lease at the end of the lease period in early January ($10, 282.50), or return the car at the end of the lease period and buy another vehicle.

Initially, I began Googling “Auto Loan Calculator” tools to figure out how much the car payment would be if I took out a loan for the amount of my vehicle. Of course it only made sense to buy my car at the end of my lease because it is a 2018 and will only have 32,000 miles on it and you can’t purchase a late model vehicle, with so few miles, for that price. However, at some point, while I was doing all of these calculations, I just stopped for a minute. I thought about exactly what I was doing. And then I went on the following internal rant to myself: 

No, YOU can’t purchase a late model vehicle, with so few miles, at that price because YOU can’t afford it. If you could afford it, you would be able to pay cash. But YOU can’t afford it. Which is why you are looking up auto loan calculators. You might as well be looking up $12,000.00 in additional debt calculators.

This was my ah-ha moment. The moment I realized that I will never be rid of debt if I always allow myself to justify borrowing money and if I don’t look at borrowing as adding debt to my already massive total. So, I came up with the following revised financial goals for the remainder of the year, assuming my income does not change:

1) Pay off PSL 1 on August 1st
2) Pay off University Student Loans 3 ($847.42) & 4 ($663.35) on September 1st Updated: Next day

3) Push the $60.00 minimum payments from USL3&4 to PSL3 Updated: Next day

4) Save $ to purchase a used vehicle at the end of the year (~$3,500.00)

I decided to payoff USL3&4 because their minimum payments are large in proportion to their balances. For example, PSL2 which has a balance $7,854.39, only has a minimum payment of $93.30 a month. Additionally, more of the current minimum payment for PSL3 goes to interest than to principal and as I would be pausing additional debt payments for the remainder of the year, I wanted to still be making some progress.  Updated: The very day after I wrote this…I know, I know.

I know that was a lot but…thoughts?

I really just want to end the debt cycle once and for all. That was an important moment and decision for me.