Please help me decide which debt to pay off first

[mominwestlake]

I have been working so hard to pay off all our debt the past 4 months. I have 1 credit card left with an interest rate of 4.99 for the life of the loan. The balance of our car loan is for the same dollar amount (under $10,000) but the interest rate is 8%. I should be able to pay off one or the other within the next 3 months and then pay off the 2nd loan within the next 9 months (year at most). Do I pay off the car loan first since it has the higher interest rate? Does one kind of debt look worse on our credit report? I don't think either go on the FAFSA- correct?

 

[kellia]

Personally, I'd pay off the credit card. At least with the car you have something to show for the debt, you could sell, etc. The unsecured debt will just snowball, the car loan will be gone in 3 years or so if you make the regular monthly payments. If you just make min. monthly payments on the CC, it will be around 30 years or something scary like that!!

Good luck!

 

[mistysue]

If the debt to credit ratio of the card is high, that can look bad. Unless you need to apply for some sort of credit immediately, I would pay off the higher interest rate first, might save you a bit of cash that way.

Congratulations on getting things paid off!

 

[lisaross]

i would pay off the credit card 1st! The car loan, i would sav up in an account and then when u could pay it all in full i would - a car loan is not bad debt.

 

[minnie1928]

i would pay off the credit card 1st! The car loan, i would sav up in an account and then when u could pay it all in full i would - a car loan is not bad debt.

Why pay it off in one lump sum? It's better to make principal payments as you go along, then there's less interest accrued.

I would pay the car off first. If you know that you will be paying them both off in a relatively short period of time, then pay off the one with the higher rate. This will lower your overall interest expense.

 

[RachaelA]

The car it has a higher interest rate.

 

[Derby4me]

I would pay the car BUT make sure you do not have a prepayment or early termination penalty. If so, then you will need to establish what is the better deal.

 

[bumbershoot]

If they are about the same amount, then go with the higher interest rate.

Pay that off, then put the money you were putting towards the car payments towards the CC. Both will be paid off so fast!

 

[mominwestlake]

Thanks for the advice to check if there is a pre-payment fee. I will look into that tomorrow. It is such a relief to see a faint light at the end of the tunnel. We never had debt but the economy has hit my dh's business hard for the past 2 years. It has been doing a lot better in the last 4 months. I am looking for a teaching job but there are none to be found. I make very little income each month. DS is a junior in high school so we are trying to get everything paid off ASAP. I have also been able to start building up our emergency fund again. This summer I will have a big garage sale to make a little money too.

 

[Mom2Ben02]

Just my humble opinion....

Build up your emergency fund first. Credit card companies are infamous now for closing cards or lowering limits when cards are paid off. If you pay off the car, and the credit card, and then an emergency comes up, you may be in trouble.

 

[holycow]

I would go to your credit union and see if you can get a lower rate on your car loan.

I would pay the credit card 1st.
If you were able to lower your payment of the car make that extra payment to credit car too.

Or put the balance of money in savings if you haven't built that up first.

I know my credit union is offerring 2 and 3 % at this time.

 

[P.I. Squirrel]

The pessimist in me says to pay off the credit card first. The car has no chance of arbitrarily raising your rate.

Of course, how about the best of both scenarios; split the payoff equally, and pay more on each, so they're both paid off early?

 

[indimom]

I have to go with the credit card.
Here are my (somewhat personal) reasons:
1. It's too easy to put more items you should not buy on a card you already owe money on...this makes it very difficult to "pay the card off." You may have more willpower than I've had in the past, but it was always soooo easy to say "we'll just do this one thing and I won't put anything else on it."
Now that our cards have been paid off for some time, we have no problem staying on top of this urge (years of training), but when we had credit card debt it seemed like every month I would pay hundreds of dollars trying to clear the debt, then put that much back on the card, getting nowhere fast.

2. Also, most cards can and do change their rates at will. It's possible you've gotten some kind of special deal, but there is usually small print somewhere allowing them to raise your rate... This type of thing doesn't happen on a car loan.

Just my opinion. I know logic would say pay the car first, but sometimes logic depends on willpower and other subjectives you can't account for...
Good luck paying off your debt, it is soooo much easier when you are keeping up, not trying to play catch up... Love It!

 

[comicguy]

I would pay off the CC first. Your car loan is not likely to increase your intrest rate like the CC companies are doing. Also the car company will not cit your value of your car like the CC's are doing to peoples credit limit.

Also at least the car is a tanagilbe asset and you can get something for it if hard times visit your home.

 

[wdwfan16]

The car it has a higher interest rate.

 

[bettymae1121]

I'd pay the CC off first since it is unsecured.

 

[Mkgaapril]

If they raise her rate on the CC she will be given notice. I would not close it either. That can really harm your score and if you have had any lates it will be hard to get another one. Maybe if you can afford to sit on the money you should consider it.

 

[Golf4food]

For credit card balances the magic number for your credit report is to keep the amount of credit used to 30% or less of the available credit (ie if the card has a $10,000 limit you want to keep your balance under $3,000 for optimal credit score). If your CC has more than 30% on it right now I'd pay it down to at least below that number, then payoff the car due to the higher rate (assuming no prepayment penalty), then use the car pmt money to add to the CC payment and pay the rest of it off, or just continue paying down the CC with the regular payment and use the car money to go into an emergency cash fund. Then you could later add money to a "future car" fund so you can buy your next one with cash - make car payments now to yourself so you don't make them to a lender in the future.

 

[donaldndaisy]

I have been working so hard to pay off all our debt the past 4 months. I have 1 credit card left with an interest rate of 4.99 for the life of the loan. The balance of our car loan is for the same dollar amount (under $10,000) but the interest rate is 8%. I should be able to pay off one or the other within the next 3 months and then pay off the 2nd loan within the next 9 months (year at most). Do I pay off the car loan first since it has the higher interest rate? Does one kind of debt look worse on our credit report? I don't think either go on the FAFSA- correct?

I would knock out the car, first, because it has the higher interest rate. You'll save more money, paying it off, first. Then, I would turn my attention to the credit card. Also, have you considered asking your card company to do lump sum settlement or interest-free pay-off? I did this (didn't close the account) with my AMEX and I saved on the interest. I just pointed out my payment history and length of time as a cardmember. I told them I didn't want to close my account, but after 10 years of being responsible, it would be nice to get a little reward, for it (plus, I had paid this account to $0 many times (pay off amounts varied $2500-$6000), without asking for a special favor). My request was submitted and I got a phone call the next day, saying they would be happy to help me out, took the payment over the phone and my account was paid off, interest-free on the remaining balance.

 

[Good Morning Dewdrop]

I don't know about the credit report but finanically I'd have to vote for car first due to the higher interest rate then turn all of your attention to the cc.