On the Money is a monthly advice column. If you want advice on spending, saving, or investing — or any of the complicated emotions that may come up

Should I sacrifice my emergency savings to pay off a loan?

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2024-09-23 11:00:05

On the Money is a monthly advice column. If you want advice on spending, saving, or investing — or any of the complicated emotions that may come up as you prepare to make big financial decisions — you can submit your question on this form. Here, we answer two questions asked by Vox readers, which have been edited and condensed.

I’m debating whether to pay off a personal loan with a savings account or keep the savings and keep paying the loan. I have no other debts but that personal loan of $25K. I’m 42 years old with two jobs in Hawai’i, and it’s been frustrating. My thought is to pay it off and start all over with no savings. Please help.

I followed up with you to get some more information about your finances, including the interest rate on your loan, and here are the numbers worth considering:

The original balance on your 60-month loan was $35,000 when you took it out in August 2023. In a year, you’ve taken the balance down to $24,800, which you accomplished by pulling back on discretionary purchases and putting more money toward your loan. Well done, especially on a budget as tight as yours.