Should I drain my savings to pay off a car loan?
Draining a significant chunk of your savings to pay off a car loan in one shot leaves you staring at your bank account with very little cash buffer. The trade-off is that you essentially nuke your emergency fund to clear the debt, leaving yourself vulnerable if an actual emergency happens.
What people tried
Every workaround mentioned in the threads below. We haven’t tested any of them — and nobody here is claiming they worked.
Found another way around this?
Share your steps and trade-offs so fellow engineers don't have to reinvent the wheel. No account required.
- 1Redirecting former monthly loan payments directly back into the emergency fundDid this help you?
- 2Cutting down other discretionary expenses to replenish savings more quicklyDid this help you?
- 3Accepting lower investment returns or taking on the mental health trade-off of carrying debtDid this help you?
- 4following the community wiki flowchartDid this help you?
- 5evaluating the interest rate of the debt versus keeping sentimental assetsDid this help you?
- 6Keep adding to the emergency fund, even in smaller amounts like $50 per month.Did this help you?
- 7Continuing to make monthly payments while keeping cash in savingsDid this help you?
- 8Paying a partial lump sum to keep a larger cash cushionDid this help you?
- 9paying twice the minimum payment each monthDid this help you?
- 10doing a mix and paying off half while rebuilding the emergency fundDid this help you?
- 11continuing to pay normally for 3-6 months after having the money before paying it offDid this help you?
- 12Opening a new credit card with a 0% introductory APR offer.Did this help you?
- 13Taking out a margin loan against investments for a lower interest rate.Did this help you?
- 14Saving up from regular cash flow in a separate fund until having enough cash to buy without touching the emergency cushion.Did this help you?
- 15Paying half in cash and financing the rest to lower the debt burden.Did this help you?
- 16Calling lenders to request hardship grace periodsDid this help you?
- 17Consolidating debt with a personal loan or 0% APR balance transfer cardDid this help you?
- 18Taking a loan against the retirement account instead of doing a straight withdrawalDid this help you?
- 19Creating a strict emergency budget and drastically cutting household spendingDid this help you?
In their words
Unedited, grouped by where they were said, most upvoted first within each place, each linked to the thread it came from.
“I drained almost half of my savings to pay off my car loan in one shot.”source ↗
“now I’m staring at my bank account and realizing I basically nuked my emergency fund.”source ↗
“I am starting to get stuck on trying to put more into my emergency fund versus putting all extra money to credit card debt.”source ↗
“Just feeling a bit unprepared for emergencies.”source ↗
“Prioritize debt being gone or preparing for emergencies?”source ↗
“I’m trying to decide whether it makes sense to withdraw some or all of the TSP to eliminate a large amount of debt, versus leaving the TSP alone and trying to manage the debt through the income/cash-flow side.”source ↗
“At what point does the cost of keeping the TSP invested become greater than the cost of liquidating it to eliminate high-interest debt?”source ↗
“The trade off is you now have very little cash buffer in case of an emergency.”source ↗
“About 10 years ago my husband and I sat through a thing about debt, came home, looked at each other, and paid off both of our cars within 24 hours. It took out a significant chunk of our savings”source ↗
“In the past, I drained savings to pay my car off, but I have a very stable job and was living with family I could easily borrow money from. If you aren’t in a similar situation, I’d keep paying it for 3-6 months after you have the money, then pay it off. You need to have at least a few grand in emergency savings if you don’t have other safety nets available.”source ↗
“The issue I’ve run into is I want to spend a couple grand on some parts and another $1000 on safety equipment. I have the money available, but prefer not to spend it all at once incase something does come up. Is it ever a bad idea to buy things like this on a credit card/personal loan instead of spending such a large amount of what I have stashed away??”source ↗
“Should I make my safety net first, pay off my car or pay off my debt? I’m just lost and need help”source ↗
“I pay $660 a month in credit card payments and have $20k in savings. Should I pay off the $17k in debt and have no monthly payments or should I keep paying monthly?”source ↗
“I am currently not making enough to pay my bills and groceries.”source ↗
“Do I pay off my car early in one lump sum and empty my savings? Or keep my savings and continue to make the same loan payments for another 2+years?”source ↗
Where this came up
People with this problem also raised
- 5Should I pay off debt or build an emergency fund first?
- 6How to pay off multiple small short-term debts and loans efficiently
- 5How much of my savings should I use for a down payment?
- 11Why do I avoid using my emergency fund?
- 4How to make extra money as a teacher without leaving your dogs
- 7Is it better to pay off credit card debt or keep cash in savings?