'Pay Off The Car Loan Or Save The Cash?' Suze Orman Shares What Makes The Most Sense For A 72-Year-Old Listener's $25k Dilemma

When it comes to deciding between paying off debt or saving money, the answer isn't always straightforward. During a recent episode of the Women & Money podcast, Suze Orman tackled this question from Sharon, a 72-year-old listener. 

Sharon explained that she has a $25,000 certificate of deposit (CD) maturing in February 2025. She owes approximately $8,000 on her car loan, with monthly payments of $351 until November 2026. Her monthly income is $4,965, while expenses total $4,700, leaving only $265 monthly to cover unexpected expenses. Additionally, Sharon has the following savings and investments:

• $26,000 in a money-market account
• $40,000 in a Roth IRA
• $70,000 in a traditional IRA
• $19,000 in mutual funds
• $30,000 in bonds

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With a tight monthly budget, Sharon sought Orman's advice on the best way to utilize her upcoming $25,000 CD. Should she pay off her car loan so those monthly payments go away or is there a better way to utilize these funds? 

Orman's advice considered both emotional and financial factors. While investing the $25,000 could yield higher returns over time, she emphasized the importance of financial security for retirees like Sharon.

Orman explained that Sharon's $351 monthly car payment consumed a significant portion of her limited surplus. Paying off the loan would free up that amount, increasing her monthly cushion to $616 – a noticeable improvement for someone living on a fixed income.

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"Just strictly the numbers, you would be financially better off if you did not pay off the car loan with that money and you actually invested it," Orman noted, stating that over the next two years Sharon would be up by "quite a few hundred dollars." 

Despite this, Orman stated that the goal of money is to feel more financially secure and that Sharon's current situation is closing it. A greater cushion each month will add to Sharon's feeling of security. 

"So if I were you, I would so pay it off," Orman advised Sharon. 

Current economic conditions can also influence decisions like this. According to Statista data, auto loan interest rates have more than doubled in the last few years. U.S. News reports that average rates for new and used vehicles exceed 10% for borrowers with good credit.

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Meanwhile, investing in the stock market could provide strong returns over time. According to Investor’s Business Daily, the S&P 500 has delivered annualized total returns of about 10.2% since 1965, though short-term volatility remains a risk. Market fluctuations might outweigh the potential gains for retirees like Sharon, who need stability.

Paying off the car loan offers immediate benefits, such as reduced monthly expenses and greater financial flexibility. However, Sharon should also consider keeping an emergency fund for unexpected expenses. Orman highlighted that Sharon's existing investments and savings put her in a strong position to prioritize reducing debt without jeopardizing her financial safety net.

For retirees, paying off debt versus saving often involves more than simple math. While investing can offer potential growth, the security of reducing expenses can provide invaluable peace of mind during retirement. For Sharon, paying off the car loan aligns with her need for stability, especially given her tight monthly budget.

Ultimately, Orman's advice reflects a principle many retirees can embrace: financial decisions should support your wallet and well-being.

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