In November, 2010 Jordan and I purchased a 2011 Ford Escape. We chose this particular vehicle because we knew in the few short years afterward we would be increasing the size of our family and wanted to be prepared for that. So far, we have two dogs. We adopted Aries in January, 2011 and Baxter in 2012. No kids yet, but we'll have the space for the lot of us when we do.
When we made the purchase, we were given the choice between a good interest rate, or a better price. We chose the better price and committed to paying the vehicle off early to make up the difference. With an interest rate of 6.99% and a loan of $27,937 we signed up to pay the vehicle off over 7 years. As the warranty ends after 5, Jordan and I wanted to have it paid off prior to then.
We started with bi-weekly payments of $189.88 then in January of this year after a ridiculous saga we moved to $100/week - increasing our payments by $260.26 over the course of the year.
After all the talk of buying a Condo, Jordan and I have decided that we should look at all of our investment options - and some of those including paying down expensive debt.
I called up BMO and found out that there are absolutely no penalties or fees if we pay off our Escape, using our Line of Credit which has a lower interest rate. The LOC has an interest rate of 5.49% - 1.5% lower then the Escape financing. Switching, and leaving our weekly payments the same would save us $788 over the rest of the loan peirod (4 years/4 months) - having the escape paid off in late 2017.
To honour our original commitment of having it paid off in 5 years, we actually need to have the debt paid by November, 2015 - or in 2 years/6 months.
Using an online debt calculator, I ran a couple of scenarios based on the lower interest rate. If we increased our weekly payments from $100 to $160 - effectively $3,120/year - it will be done.
So, should we do it?
I suppose it's a two part question - one, do we tie up half of our LOC (currently at $0) with the auto debt to save an initial $788 and two, do we then increase our payments by $60 week to have the Escape paid off within 5 years of purchasing it?
If we did, here is what our monthly budget might look like to accommodate that:
There is still quite a bit of cash left over every month - but keep in mind that is cash that was allocated for the backyard. Making this change would also mean that we would need to find an additional $2,640 to pay for our back yard in cash (or, use the LOC and have it paid off be February, 2014).
Okay - I think those are all the facts - what should we do?