Back again with more questions - pay off car loan or invest money?

[taubel]

Hi - I posted a few weeks ago about wanting to buy a larger house and whether we should pay off our car loan and received a lot of great responses.

So here's my next question!

We still want to buy a larger house, but we will definitely wait until we are confident we can afford it.

In the meantime, DH has informed me that we have an additional 10K (so happy!) from his parents (for our kids' college educations - we have three kids)

So we have a 10K emergency fund (which will not quite cover 6 months of living expenses), a small savings and our tax return (which we want to keep around for home repairs/small unexpected expenses), and now this additional 10K.

So NOW the question is, do we invest the 10K for the kids' college, or do we use it to pay off our car loan ($7500 balance) or part of a student loan (almost $19K) or part of our mortgage?

We do have other investments - 401(k) and I think some IRAs - but not as much as we would like.

Any thoughts?  

[kristandthekids]

I would normally say car loan. You're paying interest on something that is depreciating in value. After the car is paid off, you can throw what would have been going towards car payments into student loan. Then throw what would have been car payment + student loan payment into savings and investment.

BUT if the money was a gift that was specifically for a certain purpose (the kids' college funds) then I would honor their wish. If they wanted you to use it for whatever you please, they wouldn't have specified what it was for.

[lookatreestar]

yeah, if they said kids college, i'd go with that. 

Originally Posted by kristandthekids 

I would normally say car loan. You're paying interest on something that is depreciating in value. After the car is paid off, you can throw what would have been going towards car payments into student loan. Then throw what would have been car payment + student loan payment into savings and investment.

BUT if the money was a gift that was specifically for a certain purpose (the kids' college funds) then I would honor their wish. If they wanted you to use it for whatever you please, they wouldn't have specified what it was for.

[taubel]

They don't mind if we save it for college or use it for other purposes. I think it's their way of giving us money without offending us.

We are planning to pay for all three of our kids to go to college, so we will have to get that money from somewhere when the time comes.

In the meantime, we do invest a lot in our kids. We live in an overpriced area so they can go to the best schools, we feed them healthy (unfortunately, expensive!) foods, we bought them organic mattresses, etc. My in-laws are aware of all this.

If one of our children chooses not to go to college, then I would consider giving them a third of that gift money (out of our own pockets if the money was already spent by that time) to start out on whatever venture they choose.

My inlaws also would never ask what we had done with the money, so we won't have to justify our decisions.

With all this said, would paying the car off be the first thing to do? Should we pay half of the car and put the other half into an investment? I just want to do what makes the most financial sense. 

Thanks!

[betsu63]

Hi, since you have 3 kids I would invest the money for the kids for college.

[midstreammama]

I would pay off the car and then take whatever the car payment was and save that into some investment for college...

Correct me if I'm wrong, but your losing money on the car because as someone said it is depreciating in value and you are paying interest on the loan. So, I would do that as long as there would be no hurt feelings if you use the money for this..after all..it will all benefit your children..either directly or indirectly.