Use tax credit to pay off car loan or put towards mortgage? |
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hlewis11
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Joined: 31 Oct 2008
Location: Wisconsin |
Use tax credit to pay off car loan or put towards mortgage? |
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We just bought our first home and qualify for the 1st time home buyer's tax credit of $7,500. Should we pay off our only car loan or put the money towards the principal of the mortgage? The car loan interest is quite a bit higher than the mortgage interest rate.
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Fri Oct 31, 2008 8:15 pm |
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hlewis11
New Poster
Cash: $ 0.45
Posts: 2
Joined: 31 Oct 2008
Location: Wisconsin |
Pay off car loan or put money towards mortgage |
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Tim -
Can you explain why you'd pay off the car loan? My fiance thinks it would be better to put the money towards the mortgage but I disagree.
Thanks!
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Sun Nov 02, 2008 12:12 am |
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jweschman
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Location: Houston, TX |
First -- make sure you have an adequate emergency fund (3-6 months ordinary living expenses is the "standard" recommendation).
Then -- Pay off the car loan. Besides getting rid of the most expensive debt first, as Tim says, this has the advantage of actually *eliminating* one of your current monthly obligations.
Now you can take that extra monthly cash flow you just freed up, and put it towards either retirement savings (Roth IRA if you qualify, increased 401k contributions or traditional IRA if Roth isn't an option) or making periodic extra mortgage payments. If you can do this right away, and preferably make it automatic, you'll avoid the usual trap... which is letting your lifestyle "expand" to absorb the extra monthly cash.
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Thu Nov 13, 2008 7:53 pm |
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