DH and I are near to paying off one of our houses, which should yield about $700/mo extra based on the last couple of years of history of rental income minus expenses. There are two major things we should be putting that money towards: one is our current house (~$140K mortgage) and the other is a newer car (mine is 12 yrs old, goal might be about $20K). One caveat with the house is that it's upside down by a good chunk ($40-50K by Zestimate on Zillow). We have been mildly accelerating payments on it but were concentrating on the other house following the debt snowball method, since the mortgage was much smaller. The big mortgage is a little over 6% and as far as I can tell we can't refinance since we have negative equity despite excellent credit. So my question is, what are your thoughts on divvying up the savings? Prepaying the mortgage would "earn" 6+% and since we don't want to end up in the house for the long term we'd like to be able to sell it if the opportunity arises. OTOH, I do kind of need a car and would rather prepare now to potentially buy one in a few years if need be. I kind of don't like the idea of dipping into the E fund for a car since having a separate account would give me a framework for what car to look for when the time comes: eg if my goal is $20K but the car dies when I have 10K saved, I'll buy a car that costs $10K. If I don't have a separate car fund, then it's like how much of the E-fund should I use for a car? As far as the savings though, 1% is about as good as it gets earning, so I'm trying to balance that too. Anyway, thoughts are appreciated.