Pay off credit card or pay off my car?

Question

I have been fortunite enough the last 6 months to be able to pay down my debet and I know to pay off the highest interest rate first. However I have a car payment that is $148.00 monthly @ interest rate 7&1/2% I can pay off the car loan by Febuary 2007 or I can pay off my 11.5% credit card in August or late 2007. The part about freeing up $148.00 a month so I can pay more towards my credit card seems like a better idea do you agree

I owe the credit card $9.000, and I owe $5000.00 on an a 2002 Impala blue book value $8.000.00

Can you give a sweet little girl some help

Thanks and many Hugzzz
Kristy

Answer 1

Pay down the credit cards, and cancel them. The interest rate is TOO HIGH.

Answer 2

Your credit card debt has both the higher interest rate and balance. If you have an opportunity to make a substantial payment towards one of them, I think it would be prudent to work on your credit card debt first. Remember that the higher the principal balance on a credit card, the more in interest you are paying in terms of actual cash output per month, while the car loan is set up as an amortized schedule and you know what that is going to cost, making it easier to budget. Besides, while your car loan will help you some in the overall credit realm, paying down a large credit card debt will help you A LOT when it comes time for a credit report. Besides, paying off the credit card, or even paying it down significantly, will put you in a good position to negotiate with the credit card companies for a lower interest rate. Hope this helps you make a wise decision. Good luck.

Answer 3

That depends on what has the higher interest rate. Credit cards almost always have the highest interest rate. Your car loan likely has a lower rate because it is secured by an asset, the car. Let's say you can pay an extra $1000 on your car loan or your credit card. Your car loan is at 5% and your credit card is at 28%. The monthly interest on that $1000 on your car loan is $4.16, which is what your saving by paying that off early. The monthly interest on your credit card debt is $23.33, and it could be more if you don't pay the interest by the due date (you don't have a choice in the car loan on interest payments). Pay of the debt with the highest interest rate first.

Answer 4

The difference in interest saved is surprisingly small. I would advise you to pay off the car and then start paying that $148 on the credit card. Put all you can on the car and see if you can't pay it off even sooner (can you do $200/month?)

We paid off our $20,000 48-month car loan in 20 months by paying a bit extra each month. Now we've moved all that money to our last debt (student loans - UGH!) and should be debt-free by mid-2007.

You can do this! Go for it!

Answer 5

Paying down the high interest rate would be the choice based on the math alone. But there is also the factor that the lower debt amount can be eliminated first which will give you larger sense of relief. As long as you continue on the good path of debt reduction and have eliminated the behaviors which put you into that position, whichever one you choose to pay first really doesn't matter. It is the lesson of money you will have learned which will be the most valuable next to being debt free.

Answer 6

First of all, congrats on paying off bills- it is such a good feeling!

I know it is tempting to free yourself from that $148 a month, but I would still stick to your first thought which was paying off the higher interest rate. In the long run, even if you pay off the car loan, you are still paying more on interest with the credit cards.

Also, if possible, you could get a loan to consolidate the two loans with a lower interest rate. I just got one through ING direct for a 6.5% to pay off other c.cards.

Good luck either way sweetie!

Answer 7

Pay off the higher interest credit cards first.
You will pay more in intrest if you pay off the car first.

Get yourself out of debt and then just buy what you can afford.

Answer 8

Have you thought about consulidating your debts with a loan so you only have to make one payment to the bank? The interest rate should be lower too.

Answer 9

Take care of the credit cards first.

Answer 10

The car will help build your credit, go for the cards, DON'T cancel them, that shows on your credit report and if you keep canceling one card and getting another that hurts you.