So, in the past week, we've cut our car costs enormously. Actually in more ways than one, because we're cutting 320 miles a week off our driving for three weeks (Mels mom is on vacation so we're not dropping the kids off at her place each weekend, which costs us about $60 for the two round trips a week), but also we've straight up reduced our capital and recurring costs.
First step, we cut our insurance rate a HUGE amount. We cut our insurance down to $130 a month from $190 by switching insurers. Second, we made our buydown on the car today.
By buying down the extra $1500, we're getting a reduced interest rate (and of course reducing the principle) so we're going to save ourselves $3800 in interest alone over the life of our loan; and that assumes we follow the payment schedule, at $315 a month. If I just apply the difference between what we budgeted for the car before, to what it's costing us now ($598 to $445 for $153 a month), we'd cut 14 months off the loan, and save another $1600 in interest.
I'll know better next month how much we can afford to overpay, and whether that money is better off in our money market account. I don't want to reduce the term to less than two years, because we'll get more credit benefits at two years. We could do it by paying a total of $600 a month on the car, and end up only paying $1600 in interest TOTAL, for 25 months, and about 12% simple over the life of the loan; but that extra $285 a month could be saved towards the down on the house or summat, so I have to weigh the opportunity costs.
Less debt is definitely good; but more savings is also good. In terms of raw numbers clearly paying down debt at twice the rate of interest you'd be earning on that savings makes sense, but that totally neglects opportunity costs.
Of course this just illustrates my point from a few weks ago, that every penny of debt you've got is actually two or even three cents taken out of your pocket, the first in principle, the second in interest, and the third in opportunity cost.
