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Old 09-07-2012, 10:16 PM   #1
Principessa1284
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Which should we pay off first?

I've been staring at numbers all night, so my brain is about fried and I need a second (or third.. forth..) opinion! DH and I sucessfully paid off all of our credit cards about a month ago (yay!!! ) right before we bought a house. So the only debt we have right now is the mortgage, a car payment, and student loans. Since his student loans are a lot higher than mine and are on an income-based replayment plan, we're going to leave them be for the moment and just pay the minimum. The question is, what should we sock all out money towards now? My remaining student loan, or the car payment?

My student loan is down to $5,926 with an interest rate of 4.89%. This loan is also on an income-based repayment plan because a) I don't make much, and b) it at least keeps them from changing everything on me whenever thye feel like it. They liked to frequently change the interest rate, term, and monthly payment as they please since it's an adjustable. The minimum is $55/mo.

The car loan is at 13,560 with an interest rate of 3.99%. It's a fixed-rate 60-month term with about 3.5 years left.

I figured it would be better to pay the student loan off first since from either debt repayment camp it sounds better - the highest interest rate AND the lower balance. I've been mulling it over too long, and now I'm questioning my decision and thinking that the car loan might be better to pay off early since it's such a higher payment. My head hurts from trying to think it over.. which one is better? Should I go with my gut and pay the student loan? Or the car loan?
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Old 09-07-2012, 10:46 PM   #2
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I would pay the student loan first, especially since they keep changing everything on it.
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Old 09-07-2012, 10:47 PM   #3
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Quote:
Originally Posted by Principessa1284 View Post
I've been staring at numbers all night, so my brain is about fried and I need a second (or third.. forth..) opinion! DH and I sucessfully paid off all of our credit cards about a month ago (yay!!! ) right before we bought a house. So the only debt we have right now is the mortgage, a car payment, and student loans. Since his student loans are a lot higher than mine and are on an income-based replayment plan, we're going to leave them be for the moment and just pay the minimum. The question is, what should we sock all out money towards now? My remaining student loan, or the car payment?

My student loan is down to $5,926 with an interest rate of 4.89%. This loan is also on an income-based repayment plan because a) I don't make much, and b) it at least keeps them from changing everything on me whenever thye feel like it. They liked to frequently change the interest rate, term, and monthly payment as they please since it's an adjustable. The minimum is $55/mo.

The car loan is at 13,560 with an interest rate of 3.99%. It's a fixed-rate 60-month term with about 3.5 years left.

I figured it would be better to pay the student loan off first since from either debt repayment camp it sounds better - the highest interest rate AND the lower balance. I've been mulling it over too long, and now I'm questioning my decision and thinking that the car loan might be better to pay off early since it's such a higher payment. My head hurts from trying to think it over.. which one is better? Should I go with my gut and pay the student loan? Or the car loan?
I would pay off the car. You will have to check but student loan interest used to be a deduction on your federal income tax. It has been almost 10 years since we paid my husband's loans off so I don't know all the "current" rules. Also I do know income limits were in effect.

However if it will make you "feel better" to pay off your loans so you only have your car, his loans, and your mortgage; then pay off the $6K. I don't think it will be a "huge" difference in your overall financial life.

Congrats on paying off your credit cards. I know this is a major hurdle. I can also tell you the last time I sent Sally a student loan payment I felt free.
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Old 09-07-2012, 11:08 PM   #4
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There are two schools of thought on paying down debt. One is to pay off the debt with the higher interest first and the other is to pay off the smallest debt first and them apply the payment to the next highest debt. The student loan covers both - highest interest and smallest debt. Pay it off first.
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Old 09-08-2012, 01:13 AM   #5
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Sell the car and pay cash for a reliable used car. Then, start paying off the student loans.
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Old 09-08-2012, 03:48 AM   #6
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Student loan. Are you paying minimum right now? You should be able to get that out of the way easily. With a small loan and payment you're not getting a huge tax break. Once you've paid it off put whatever your were putting towards your student loan towards the car.
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Old 09-08-2012, 04:46 AM   #7
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Since the interest rates are so close, I would pay off the student loan first for a very different reason then everyone else. Once it is paid off, it is not likely you will take out a student loan again. Some people tend to think that once a vehicle is paid off, it is time to trade it in. Paying off the student loan first might help keep that from happening.
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Old 09-08-2012, 07:25 AM   #8
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Quote:
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Student loan. Are you paying minimum right now? You should be able to get that out of the way easily. With a small loan and payment you're not getting a huge tax break. Once you've paid it off put whatever your were putting towards your student loan towards the car.
makes sense! snowball those debts! student loan first, then apply that amount to the car,then when that's done apply all that to your dh's loan....
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Old 09-08-2012, 07:30 AM   #9
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Sell the car and pay cash for a reliable used car. Then, start paying off the student loans.
I know here you got these words,and it doesn't always work so neatly in an already progressing life scenario....
It would make no sense to take a massive loss on the car now,only to be driving a used model . i.e. a new car depreciates fast, so then you end up paying it off over time anyway, but car has lost a lot of it's original value. You can't resell it to make that up,and if you do, then you'll have already spent the money anyway (which you can't recoup at this point) and end up having to buy another used car with who knows how many problems-
it will not save OP anything much to do this. since it's already done!
I agree w/pp's..... just b/c the car note is paid off,don't trade it in,keep going n it,until it can't be driven anymore!
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Old 09-08-2012, 07:47 AM   #10
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Do NOT sell the car. Getting another car, even used, is an expense. Your car now is a known factor. Getting another is an unknown, especially used.

I would pay off the student loan then focus on the car.

(Wish I was in your shoes! Good work!)
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Old 09-08-2012, 08:47 AM   #11
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Student loan for all the reasons already mentioned, plus I just loathe the idea of anything with an adjustable rate. Been bitten by that.
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Old 09-08-2012, 09:48 AM   #12
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How much do you have in savings and emergency fund? You need to make sure you have that first.
Pay yourself first, then I would work on the student loan second.

I'm going to assume your car is new or like new because of the amount you still owe plus how long you still need to pay. So it's not like you need to pay it off soon because it's going to need to be replaced.

Once the student loan is paid off you can roll that over to savings, car loan, or split it between the 2.

OH and congrats on getting your credit cards paid off!!
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Old 09-08-2012, 03:00 PM   #13
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Student loan, mainly since they are generally not dischargable in bankruptcy. While you may think you are at absolutely no risk of bankruptcy now, you never really know what the future may hold - all it can take is 1 bad accident or illness to send even the best saver into bankruptcy.
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Old 09-08-2012, 09:38 PM   #14
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Originally Posted by BernardandMissBianca View Post
How much do you have in savings and emergency fund? You need to make sure you have that first.
Pay yourself first, then I would work on the student loan second.

Once the student loan is paid off you can roll that over to savings, car loan, or split it between the 2.
I agree. Make sure you have money in savings to cover situations where you don't have to put them on a credit card.
Then student loan
after student loan is paid off, put that amount from student loan on car payment.
typical Dave Ramsey move.
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Old 09-08-2012, 10:04 PM   #15
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