Car loans can eat up hundreds of dollars in a monthly budget. Once a car is finally paid off, a wave of relief hits — not to mention, some extra cash is freed up. Though it’s tempting to splurge with this money, finance experts say to do these smart moves first. Read on to see how to make the most of extra money after finally paying off your car loan.
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Start Saving
Paying off a car can prevent people from putting money in savings. Ashley Morgan, bankruptcy and debt lawyer and owner of Ashley F. Morgan Law, PC, recommended saving at least part of the money that would have gone toward the car payment. Not only will it help in case of emergency, but it will pay for future car repairs that might come up.
“I especially encourage people to save at least part of their payment once it is done if they do not have a decent emergency fund or long-term savings,” Morgan said. “Most people pay off a car after four to six years and the car is older. This usually means there will be larger car repair expenses on it in the next couple years. To prevent going into debt for repairs, saving the amount you were using for a car payment can be helpful.”
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Pay Off Other Debt
Once a car loan is taken care of and savings has begun to grow, Morgan said it’s time to address other sources of debt. “If you have unsecured debt, like credit cards or personal loans, you should be paying down that as quickly as possible. As long as you have a three- to six-month emergency fund, it is ideal for you to throw anything left over after necessary expenses toward debt.”
Put Money Toward Retirement
If there’s money in a savings account and there’s no debt, Morgan recommended putting money toward the future in the form of retirement savings. “If you have matching at your job for retirement, the first place to save once money opens up in your budget is saving for retirement to max out on the matching component of your job’s 401(k) plan,” she said. “After that, it is balancing long-term savings, retirement and saving for any other specific goals you might have.”
Max Out a Health Savings Account
If a job offers the option to put money in a health savings account (HSA), Kyle Enright, president of Achieve Lending, said this is a great move to make. “Contribute to and fully fund a health savings account if your health insurance policy includes a qualifying HSA,” he explained. “Contributions are tax-deductible and uses of the funds for qualifying medical expenses are tax-free.”
Start a College Fund
If there are kids in the picture, starting to put money toward a college fund can be very beneficial in the long run. Enright suggested putting any excess cash after a car is paid off into an account that’s just for your kids’ future education.
Begin Investing
Dr. Annie Cole, Ed.D., money coach and founder of Money Essentials for Women recommended putting cash into investment accounts like stocks and certificates of deposit. This way, money can grow effortlessly over time. “Use a free online investment calculator to see what a big difference your extra investments now could make over the long run,” she added.
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This article originally appeared on GOBankingRates.com: 6 Things To Do Once You Pay Off Your Car Loan
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