How should we split our funds between a savings account, brokerage account, and car loan?

We are both 24 years old, have dual income, no kids, and are curious about the best way to split our funds between our savings account, brokerage account, and car loan. Right now we have $2,600 a month set aside for savings ($2k) and debt ($600). We put $900 into a brokerage account (mutual funds right now), and $1100 into a savings account. We owe $25k for a car loan ($570 per month at 2.74% for 4 years), and want to pay this down within the next 2-3 years, or less. I get a 10-15% ($8-9k) bonus each year and will put at least $2k into the loan payments from that each year. We have about $30k liquid money saved, $45k equity into our current house, and about $15k in retirement accounts.

Would it be a smart idea to take some money out of the $1100 that goes into savings and pay down the debt sooner, because rate is 2.74% and our bank account interest isn't close to that? If so, how much of that savings should we put towards our debt?

Debt, Personal Finance
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January 2018

Paying off your car will save some, but most car loans have fairly low interest rates these days, averaging 2.98% for a 60-month new car note. 

But the majority of car loans are calculated using what’s called the simple interest method. This means the interest paid each month is based on the loan’s outstanding balance. The earlier you pay off or pay down these loans, the more you will save in interest payments. You can figure out how much you could save on your particular loan by plugging your numbers into a calculator like the one at

It may not seem significant but the reason for getting out of a loan like this early is that you will be freeing up money in your budget every month. There is an opportunity cost involved whenever you borrow money, and it is a cost many people do not consider.

This is the same logic that suggests it is a good idea to get out of your mortgage (even with a low rate) before you retire. It is not the hefty interest rates associated with these debts, but rather the fact that you have them that stops you from doing other things.

The average monthly payment on a car loan right now is $471, what else could you do with that money each month? If you invest it instead at a 6% interest rate, you would have close to $77,000 after 10 years. 

If you do decide to put your bonus money toward your auto loan, you want to make sure you are actually paying down principal. In many cases, paying extra will signal to the lender not that you are trying to reduce the amount of interest paid or get out of the loan early, but that you do not have to make another payment for a few months. If you want the payment to go toward principal you should call the lender and ask how to make that happen. 

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