| Which Would You Pay Off First? |
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moneyflow
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| Which Would You Pay Off First? |
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I have a $17,000 car loan at 6% and and around $9000 in credit card debt at 8.9%
Should I put extra money into the bigger lower interest loan or concentrate on paying off the card first and then using that to double up on car payments.
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Sun Jan 20, 2008 3:41 am |
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oldguy
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Yes, cc debt first. But I wouldn't prepay the 6% car loan, that is a pretty fair rate, cheap use of someone else's money. Maybe you could add it your 401k instead?
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Sun Jan 20, 2008 11:12 pm |
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rockhound
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| CC |
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Agreed, pay off the credit card first. The 8.9% rate sounds pretty low, like perhaps it is an introductory rate, and that is a concern because it is sure not to last. The credit card debt is a real weakness because you don't have a contract for a credit card like you would with nearly any other kind of loan. With a self-approved loan, which is what the credit card is, there is no term length, no set payment amount, and as Coaster points out, there is no set interest rate. Right now it is 8.9%, but with banks taking billions in losses from the sub-prime market, you may find very soon that your rate has magically increased to 18%. Maybe they'll say you were late, maybe there was fine print you didn't read, or maybe they just arbitrarily decided to change their rate. Thus, paying off the credit card reduces your exposure to unnecessary risk. It also falls into the general rules of thumb of paying off the lowest balance debt first, and paying off the highest interest loan first.
As oldguy pointed out, 6% for the car loan is fair. I'm not greatly in favor of car debt, but I guess many regard it as a fact of life, and as long as you're not drowning in debt, I guess there is no harm in just continuing to pay the loan to term. What you might do is to take an equivalent $17,000 that you already have (or will have, like a monthly allotment from your paycheck) and pay it into some investment, whether your retirement plan, a mutual fund, or even a CD. The rate of return will offset or may even beat the interest on the car loan, so it will be like covering your interest at least, and maybe by the end of the loan term, you will have saved up the equivalent principal that you spent on the car.
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Mon Jan 21, 2008 11:03 pm |
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Apollo
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| Re: CC |
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I would pay of the CC first and suggest that you adjust your spending behaviour otherwise you'll be back where you are now in a few years after you paid it off.
There is a reason why you accumulated that debt and you need to adjust your spending approach to avoid that in the future. Paying-off debt is just one-half of the equation.
It is not smart to play it safe but it is safe to play it smart.
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Tue Jan 22, 2008 8:43 am |
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moneyflow
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Actually no the 8.9% percent is locked in. I have really good credit and just got a lower interest card at the credit union to transfer the balances from the higher interest card which I was paying something like 18% on.
I also got the 6% car loan through them. I made a mistake though, I only have a balance of $4,500 on the 8.9% card and the rest is in a debt management program where I got my interest rate lowered to 6% on the card till I pay it off.
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Tue Jan 22, 2008 8:30 pm |
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pf101
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Pay off the highest rate debt first.
Personal Finance 101
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Tue Jan 22, 2008 8:34 pm |
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jerrymind
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| Re: Which Would You Pay Off First? |
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quote:
Originally posted by moneyflow
I have a $17,000 car loan at 6% and and around $9000 in credit card debt at 8.9%
Should I put extra money into the bigger lower interest loan or concentrate on paying off the card first and then using that to double up on car payments.
I have always paid off my debt based on the interest rate on the debt. I will consolidate the payment and pay them off concurrently. I guess you know how much you earn and how much your willing to put into the debt.
But make sure you have a plan that will see the interest rate been knocked down,otherwise you'll end-up paying off your IR.
When you pay it off, go have a savings account and put in 10% of earnings monthly..at least.
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Mon Sep 01, 2008 9:11 am |
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debthelper
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| Credit Card Debt |
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Pay off the Crediit Card Debt first. Car loan isn't so bad.
Good luck with that.
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Wed Sep 10, 2008 9:38 am |
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emarketer102
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| Repaying Debts |
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As a general rule, the higher interest rate loans should be paid of first, then the next highest, etc, until all is paid off for.
The problem with most people, is that they are hooked on living on money they have not earned. That's what a "car loan" is all about. Driving a car that is not yours.
One of Will Smith's favorite quotes on money is that “Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like.”
Buy a car for cash, even if it has 50,000 miles on it. Save the balance and in three years time buy a brand new car for cash. That way, the owner is free, with no loans, no worries, and happy living.
By the way, How many rich people actually have Credit Card debts and car loans?
As Robert Kiyosaki points out in his book Rich Dad Poor Dad, poor people take loans to buy things to make them appear as if they are rich, while the rich save, and invest their money, and spend out of the proceeds of their investments.
Debts of any kind will not get you wealthy or free, it just keeps a person in what Robert Kiyosaki calls the "Rat Race"
regards
Marlon
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Wed Jul 14, 2010 4:11 pm |
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pwsolutions
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pay off your CC first.
the only rule when you are into many loans and debts; pay off the item that has the highest interest rate.
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Sat Jul 17, 2010 10:00 pm |
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Social Media
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| Re: Which Would You Pay Off First? |
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quote:
Originally posted by moneyflow
I have a $17,000 car loan at 6% and and around $9000 in credit card debt at 8.9%
Should I put extra money into the bigger lower interest loan or concentrate on paying off the card first and then using that to double up on car payments.
I would pay off the credit card debt first. Two reasons... 1) it has the higher interest rate and 2) you will be able to eliminate it in its entirety sooner so you'll feel like you're making more progress. This is a common practice - paying down the smallest debt first as opposed to paying down the highest interest rate first.
Make minimum payments on your car and put all extra cash towards the higher interest, smaller amount owed on your credit card.
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Mon Jul 19, 2010 12:55 am |
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mukeshkkashyap
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pay off the item that has the highest interest rate.
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Mon Jul 19, 2010 7:59 am |
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rachel59
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| SETTLE IT |
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You should work on getting this debt consolidated. Becasue interest rates will have you paying back much more than you owed anyway
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Tue Jul 20, 2010 2:53 pm |
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littleroc02us
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Personally I would pay minimum on the car loan and then work like heck to pay off the cc debt. The reward will come sooner and should help you to gain motivation. Not sure what your specifics are in your budget, but can you give a projected outcome if you were to do it my way. How many years and months would this take and why.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Tue Jul 20, 2010 8:17 pm |
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Credit Money & Life
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quote:
Originally posted by moneyflow
Actually no the 8.9% percent is locked in. I have really good credit and just got a lower interest card at the credit union to transfer the balances from the higher interest card which I was paying something like 18% on.
I also got the 6% car loan through them. I made a mistake though, I only have a balance of $4,500 on the 8.9% card and the rest is in a debt management program where I got my interest rate lowered to 6% on the card till I pay it off.
Well I would pay off the card first. While your in that debt management program the creditors will more then likely report a "TPI" or Third Party Intervention and that will look like a little brother to bankruptcy. So get those cards paid off as quickly as you can so that you can end that program sooner. Its going to stick on your credit report for appoximately 7 years once out of the program.
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Tue Jul 20, 2010 10:10 pm |
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