Auto loan and student loan balance
I don't understand the calculations in the comments by the OP. He says My monthly savings after mandatory expense is around USD 2000. This includes rent, expenses, emergency fund savings, and the monthly required payment of my auto loan.  (emphasis added) He has $2000 USD left over after monthly expenses (which includes rent, food, utilities etc, contribution towards emergency funds, and the required monthly payment on the auto loan). He claims that by applying the $2000 USD per month towards reducing the debt, it would take him 30-36 months to be debt-free.  But is it not the case that applying the $2000 to the student loan of $18K+ (while continuing to make the auto loan payments) will pay the student loan off in less than 10 months? If no payments are made on that $18K+ student loan, the accrued interest of about $2K in 10 months (this is (18.25*13.7%*)(10/12) for a total of $20K+). In actuality, with the loan being paid down, the interest will be much less. Once the student loan is paid off, the extra $2000 can go towards what is left of the $10K auto loan each month and  pay it off in another 4 or 5 months or so. So we are talking of 15 months max instead of 30-36 months. Of course, as Carlos Briebiescas points out, the car is more valuable as an asset than can be sold in case of job loss  creating  a need for cash etc, and so paying it off first might be better, but that is a different calculation. So, in general, pay to the higher interest rate.  Some contrived reasons you would want to pay your auto  loan more could be:
If the car loan has 0% interest for 5 years, then paying off the student loan is cheaper. No matter when you pay off the car, you will pay the exact same amount (as long as its within 5 years). You could spend $20,000 right now to pay off the car loan or slowly spend $20,000 over the next 5 years. The gross amount paid for the car loan does not change. On the contrary, the longer you wait to pay off the student loans, the more you will end up paying for them. So why not get the student loans out of the way before they rack up more interest and pay the car loan over time? Update: I forgot to add, as Ben Miller said, congratulations on paying off the $40,000! I agree with the deposit part. But if you are buying a new car, the loan term should meet the warranty term. Assuming you know you won't exceed the mileage limits, it's a car with only maintainence costs and the repayment cost at that point. When you get a loan (car, home, student) the lending company (bank) give the (auto dealer, previous home owner, school) money. You as the borrow promise to pay this money back with interest.  So in your case the 100,000 you borrow requires a payment for principal and interest of ~965 per month. After 240 payments you will have paid the bank ~231,605.  So who got the ~131,000 in interest. The bank did. It was used to pay interest to the people who made deposits into the bank. It was also used to pay the expenses of the bank: salaries, retirement, rent, electricity, computers, etc. If the bank is a company with investors they may have to pay dividends to them to.  Of course not all loans are successfully paid back, so some of the payment goes to cover the loans that are in default. In many cases loans are also refinanced, or the house is sold long before the 20-30 year term is up. In these cases the amount of interest received for that loan is much less than anticipated, but the good news is that it can be loaned out again. First of all, congratulations on paying off $40k in debt in one year. Mathematically, you'd be better off making the standard car loan payments and putting your extra money toward the student loan. However, there are a few other things that you might want to consider. Over the last year, you've knocked out a whole bunch of different debts.  Feels pretty good, doesn't it?  At your current rate, you could knock out your new car loan in 6 months.  Then you'd only have one debt left.  If it sounds to you like it would be nice to only have one debt left, then it might be worth the mathematical disadvantage you would get by paying off the car early instead of putting the money toward the last student loan. The car loan is 0%, but if you are late on a single payment, they will take that opportunity to raise your interest rate to something probably higher than the interest rate of your student loan.  For this reason, you may decide it is not worth the hassle, and you'd rather just eliminate the car loan as quickly as possible. Either choice is fine, in my opinion, as long as you have a purpose behind the choice and you are committed to eliminating both debts as quickly as possible. As an aside, it is important to remember that even a 0% loan is not really free money, and needs to be paid back.  You know this, of course, but sometimes you see a 0% loan advertized and it feels like free money.  It's not.  You have probably already paid for the loan by forfeiting a rebate.  So although, at this point having already taken this loan and paying for it, you will come out ahead by dragging out your car loan for the full term, in the future do not think that you can make money by buying something at 0% interest. By paying the $11,000 into the 2.54% loan you will save $23.30 in interest every month. By paying the $11,000 into the 3.625% loan you will save $33.20 in interest every month. If your objective is to get rid of one loan quicker so repayments can go to the other loan to pay off sooner, I would put the $11,000 into the 2.54% loan and pay that off as quick as possible, then put any extra payments into the mortgage at 3.625%. Pay only the minimum amounts into the 0% car loan as this is not costing you anything. "Depending on how you view the loan, it could either be considered an Asset or a Liability.  Since you are not charging interest, it might seem more intuitive to create an ""Assets:Cash Loan"" account, and transfer money to & from it (when you receive payments) like you would with a bank account. Personally, I prefer to think of all loans as liabilities.  Whether it's a debt which you owe someone, or a balance which someone else owes you, since it's an 'unsettled' amount I file it under ""Liabilities:Loan"".  Either way, you record the initial balance as a debit from your bank, and then record payments as credits back to your primary account. The only way that income or expenses ever gets involved would be if you charged interest (income) or if you forgave some or all of the loan (expense) at some point in the future." The balance is the amount due. "This is the best tl;dr I could make, [original](https://www.forbes.com/sites/zackfriedman/2017/10/19/cfpb-student-loans-complaints/#7a5b4cfc6444) reduced by 88%. (I'm a bot) ***** &gt; Since 2011, the CFPB has received over 50,700 private and federal student loan complaints and 9,800 debt collection complaints, which have led to actions that have returned more than $750 million to student loan borrowers.  &gt; For federal student loans, 71% of complaints related to dealing with a student loan lender or servicer, while 28% related to student loan repayment and 2% to credit score or credit report.  &gt; Whether it&amp;#039;s Student Loan Refinancing, Federal Student Loan Consolidation, Income-Driven Repayment Plans or Student Loan Forgiveness, you must understand all your student loan options.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/784vwz/cfpb_has_helped_return_750_million_to_student/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~233271 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **Loan**^#1 **student**^#2 **service**^#3 **borrower**^#4 **plan**^#5" "Money is a token that you can trade to other people for favors. Debt is a tool that allows you to ask for favors earlier than you might otherwise. What you have currently is: If the very worst were to happen, such as: You would owe $23,000 favors, and your ""salary"" wouldn't make a difference. What is a responsible amount to put toward a car? This is a tricky question to answer. Statistically speaking the very worst isn't worth your consideration. Only the ""very bad"", or ""kinda annoying"" circumstances are worth worrying about. The things that have a >5% chance of actually happening to you. Some of the ""very bad"" things that could happen (10k+ favors): Some of the ""kinda annoying"" things that could happen (~5k favors): So now that these issues are identified, we can settle on a time frame. This is very important. Your $30,000 in favors owed are not due in the next year. If your student loans have a typical 10-year payoff, then your risk management strategy only requires that you keep $3,000 in favors (approx) because that's how many are due in the next year. Except you have more than student loans for favors owed to others. You have rent. You eat food. You need to socialize. You need to meet your various needs. Each of these things will cost a certain number of favors in the next year. Add all of them up. Pretending that this data was correct (it obviously isn't) you'd owe $27,500 in favors if you made no money. Up until this point, I've been treating the data as though there's no income. So how does your income work with all of this? Simple, until you've saved 6-12 months of your expenses (not salary) in an FDIC or NCUSIF insured savings account, you have no free income. If you don't have savings to save yourself when bad things happen, you will start having more stress (what if something breaks? how will I survive till my next paycheck? etc.). Stress reduces your life expectancy. If you have no free income, and you need to buy a car, you need to buy the cheapest car that will meet your most basic needs. Consider carpooling. Consider walking or biking or public transit. You listed your salary at ""$95k"", but that isn't really $95k. It's more like $63k after taxes have been taken out. If you only needed to save ~$35k in favors, and the previous data was accurate (it isn't, do your own math): Per month you owe $2,875 in favors (34,500 / 12) Per month you gain $5,250 in favors (63,000 / 12) You have $7,000 in initial capital--I mean--favors You net $2,375 each month (5,250 - 2,875)   To get $34,500 in favors will take you 12 months ( ⌈(34,500 - 7,000) / 2,375⌉ ) After 12 months you will have $2,375 in free income each month. You no longer need to save all of it (Although you may still need to save some of it. Be sure recalculate your expenses regularly to reevaluate if you need additional savings). What you do with your free income is up to you. You've got a safety net in saved earnings to get you through rough times, so if you want to buy a $100,000 sports car, all you have to do is account for it in your savings and expenses in all further calculations as you pay it off. To come up with a reasonable number, decide on how much you want to spend per month on a car. $500 is a nice round number that's less than $2,375. How many years do you want to save for the car? OR How many years do you want to pay off a car loan? 4 is a nice even number. $500 * 12 * 4 = $24,000 Now reduce that number 10% for taxes and fees $24,000 * 0.9 = $21,600 If you're getting a loan, deduct the cost of interest (using 5% as a ballpark here) $21,600 * 0.95 = $20,520 So according to my napkin math you can afford a car that costs ~$20k if you're willing to save/owe $500/month, but only after you've saved enough to be financially secure." "Repayment of student loans is usually deferred until graduation. Unless you are late or non-performing on a loan, it will make no difference to an auto loan. To get a (normal) auto loan you will need to demonstrate a source of income or have the loan co-signed by someone who does have income. As a general rule of thumb, banks care a lot more about your income than your ""credit score""." I see you've marked an answer as accepted but I MUST tell you that STOPPING your 401k contribution all together is a bad idea. Your company match is 100% rate of return(or 50% depending on structure).  I don't care what market you look at, or how bad a loan you take out, you will not receive 100% rate of return, or be charged 100% interest. Further, taking out a loan against your 401k effectively does two things: It is a loan that must be repaid according to the terms of your 401k  AND in every 401k I've ever encountered, you cannot make contributions to the 401k until the loan is repaid. This in effect stops your contributions, and will almost certainly save you very little on your interest rates on your current loans. I have 4 potential solutions that may help achieve your goal without sacrificing your 401k match and transferring the debt from one lender to another, but they are conditional. Is your company match 100% up to 4% of your salary, or 50% of your contribution (up to a limit you have not yet reached)? This is important.  If it is 100% up to 4%, stop committing the additional 4% and use that to pay down your debt...and after ward set up that 4% as auto pay into an IRA, not into the 401k.  An IRA will make you more money because YOU have control over its management, not your employer. If it is 50% match, contribute until the match is met because you cannot get 50% rate of return anywhere, then take your additional monies and get an IRA.  As far as your debt, in this scenario simply suck it up and pay it as is.  You will lose far more than you gain by stopping your contributions. If you simply must reduce your expenses by 150$ month try refinancing the mortgage and rolling the 6500$ into it.  If you get a big enough drop in the interest rate you could still end up paying less. OR If you cannot make the gain there, try snowballing the three payments.  You do this by calling your student loan vendor and telling them you need to make much smaller payments, like even zero depending on the type of loan.  Then take ALL of the money you are currently spending on the 3 loans and put into the car payment.  When it's gone, roll the whole thing into the higher interest student loan, then finally roll it all into the last student loan.  You'll pay it off faster, and student loans have lots of laws and regulations regarding working with payers to keep them paying something without breaking them. WHATEVER YOU DO, DO NOT STOP YOUR CONTRIBUTIONS.  50% OR 100%, THAT MONEY IS GUARANTEED AT A HIGHER RATE OF RETURN THAN YOU CAN GET ANYWHERE, ESPECIALLY GUARANTEED. "Outstanding principal balance is the amount you owe at any given time, not including the amount of interest you need to pay as soon as possible. The ""capitalized interest"" shown is consistent with an average of 13.5 months between when each dollar is borrowed and when the repayment period begins. Suppose you borrow the first half of the money on September 1, 2017 and the second half of the money on February 1, 2017 (5 months later).  At that point, half the money has been accruing interest for 5 months.  On January 1, 2018, half the money accrued interest for 16 months, and half the money accrued interest for 11 months.  The lender now expects you to start repaying the loan, with the first payment due at the end of January 2018 or the beginning of February 2018.  If you make the minimum payments on time, the lender expects you to make 120 monthly payments.  The last monthly payment would be at the end of December 2027 or the beginning of January 2028. The lender (or the website) should provide details about the actual payment plan, grace periods, provisions for handling inability to pay due to unemployment, and other terms. In the United States, most installment loans pretend that (for purposes of calculating interest) every month has 30 days -- even February and July!  Each month, 1/12 of the ""annual percentage rate"" (APR) is charged as interest.  If you do the compounding, a 6.8 percent APR corresponds to (1 + 0.068 / 12)^12 - 1 = 7.016 percent ""annual percentage yield"" (APY). Also, the APR is understated.  The 6.8 percent applies to the full balance (including the loan fees), even though the borrower only gets the amount minus the loan fees.  The 6.8 percent rate is useful for doing calculations after the loan fees have been charged, though.  These calculations include the capitalized interest and the monthly payment amounts. A true calculation of the APR would take the loan fees into account, and give a higher number than 6.8 percent.  But the corrected APR would not be useful for calculating the capitalized interest, nor for calculating the monthly payment amounts." If you end up keeping the student loan, it will be a tax deduction.  Probably not much but at least it's something. You are currently $30k in debt.  I realize it is tempting to purchase a new car with your new job, but increasing your debt right now is heading in the wrong direction.  Adding a new monthly payment into your budget would be a mistake, in my opinion. Here is what I would suggest.  Since you have $7k in the bank, spend up to $6k on a nice used car.  This will keep $1k in the bank for emergencies, and give you transportation without adding debt and a monthly payment.  Then you can focus on knocking out the student loans.   Won't it be nice when those student loans are gone?  By not going further into debt, you will be much closer to that day.  New cars are a luxury that you aren't in a position to splurge on yet. Basically you have 4 options: Use your cash to pay off the student loans. Put your cash in an interest-bearing savings account. Invest your cash, for example in the stock market. Spend your cash on fun stuff you want right now. The more you can avoid #4 the better it will be for you in the long term. But you're apparently wise enough that that wasn't included as an option in your question. To decide between 1, 2, and 3, the key questions are:  What interest are you paying on the loan versus what return could you get on savings or investment?  How much risk are you willing to take? How much cash do you need to keep on hand for unexpected expenses? What are the tax implications? Basically, if you are paying 2% interest on a loan, and you can get 3% interest on a savings account, then it makes sense to put the cash in a savings account rather than pay off the loan. You'll make more on the interest from the savings account than you'll pay on interest on the loan. If the best return you can get on a savings account is less than 2%, then you are better off to pay off the loan. However, you probably want to keep some cash reserve in case your car breaks down or you have a sudden large medical bill, etc. How much cash you keep depends on your lifestyle and how much risk you are comfortable with. I don't know what country you live in. At least here in the U.S., a savings account is extremely safe: even the bank goes bankrupt your money should be insured. You can probably get a much better return on your money by investing in the stock market, but then your returns are not guaranteed. You may even lose money. Personally I don't have a savings account. I put all my savings into fairly safe stocks, because savings accounts around here tend to pay about 1%, which is hardly worth even bothering. You also should consider tax implications. If you're a new grad maybe your income is low enough that your tax rates are low and this is a minor factor. But if you are in, say, a 25% marginal tax bracket, then the effective interest rate on the student loan would be more like 1.5%. That is, if you pay $20 in interest, the government will then take 25% of that off your taxes, so it's the equivalent of paying $15 in interest. Similarly a place to put your money that gives non-taxable interest -- like municipal bonds -- gives a better real rate of return than something with the same nominal rate but where the interest is taxable.