Car payoff vs. Roth IRA catch up?

Glad to be on the GRS forums! Greetings, fellow money wizards in training. Smile

I'm approaching a crossroads. (I'm 35, single dad with joint custody.)
I've got some freelance work coming in which will pay somewhere between 5k and 12k with a first payment of 5k coming in the next few months.

I'm debt free except for 7k on my car, plus my house. However, I stopped my Roth IRA contributions for most of 2009, restarting them just this month.

I'm mindful of the importance of maxing out my IRA, but the prospect of clearing my car note is *very* enticing.

Which use of that $5,000 do you folks think would be best: catch up on this year's IRA contributions or go ahead and pay off the car (2006 Honda Civic)? I'm leaning toward paying off the car since that would free up $340/mo to stash into building a larger emergency fund. (only $500 currently)

Thanks for everyone's input!

FuturShoc wrote:

Glad to be on the GRS forums! Greetings, fellow money wizards in training. Smile

I'm approaching a crossroads. (I'm 35, single dad with joint custody.)
I've got some freelance work coming in which will pay somewhere between 5k and 12k with a first payment of 5k coming in the next few months.

I'm debt free except for 7k on my car, plus my house. However, I stopped my Roth IRA contributions for most of 2009, restarting them just this month.

I'm mindful of the importance of maxing out my IRA, but the prospect of clearing my car note is *very* enticing.

Which use of that $5,000 do you folks think would be best: catch up on this year's IRA contributions or go ahead and pay off the car (2006 Honda Civic)? I'm leaning toward paying off the car since that would free up $340/mo to stash into building a larger emergency fund. (only $500 currently)

Thanks for everyone's input!

What's the interest rate on your car loan? Let's say it's 5%. Would you take out a loan at 5% so you could put the borrowed money into an IRA? No. Same thing your contemplating. Take the guaranteed profit and pay off that loan. Then you can invest whatever you want!

_________________
Live Like No One Else!!

I would use the $5k in the emergency fund personally. then use the future freelance earnings to pay off the car.

Look at it this way, if you pay off the car now and THEN have an "emergency" come up you have nothing left to handle the emergency!

FuturShoc wrote:

Glad to be on the GRS forums! Greetings, fellow money wizards in training. Smile

I'm approaching a crossroads. (I'm 35, single dad with joint custody.)
I've got some freelance work coming in which will pay somewhere between 5k and 12k with a first payment of 5k coming in the next few months.

I'm debt free except for 7k on my car, plus my house. However, I stopped my Roth IRA contributions for most of 2009, restarting them just this month.

I'm mindful of the importance of maxing out my IRA, but the prospect of clearing my car note is *very* enticing.

Which use of that $5,000 do you folks think would be best: catch up on this year's IRA contributions or go ahead and pay off the car (2006 Honda Civic)? I'm leaning toward paying off the car since that would free up $340/mo to stash into building a larger emergency fund. (only $500 currently)

Thanks for everyone's input!

Can you tell us a little more? How much do you have saved for retirement? If you have quite a bit then I would lean toward paying off the car or to an emergency fund. If not then I would put it in retirement. At 35 you need to have a decent nest egg or you need to get started immediately. If you have no pension or other employer plan that will pay you then you need to save for yourself. At 35 you still have a while but you should still have saved a good amount. If not then I would definitely get started as the highest prioroity.

Pay the car off. I think the psychological pay off you were talking about is worth it. Also, it will improve your cash flow once it is paid off. If you'd like take that extra money and start putting it in your retirement account.

Also, depending on whether you are above water on your house and what interest rate you are paying and how long you plan on staying where you are look into refinancing your house.

Ben
www.thriftyapp.com

what's the interest rate on the car? second, $5k income isn't $5k you have because you have to account for taxes or withholding taxes. presumably you have an interest rate on the car loan, so it would be more beneficial to get rid of the car loan debt. next beef up your emergency fund, especially since you have a kid. then start contributing to your ira.