Hi, I have $5000 at the end of the year. I would like to use it wisely and need someone's advice. Should I use the $5000 to pay a "portion" of higher-interest loan whose balance is at $40000 or should I use the $5000 to "Pay Off" lower-interest loan whose balance is at $4820? Any benefit of paying off the entire loan? Thank you in advance.
2007-10-16 03:51:29 · 4 answers · asked by wc 1 in Business & Finance ➔ Personal Finance
Loan 1 (lower) - Federal Loan, 5%, $4,500
Loan 2 (higher) - Second Mortgage, 10.75%, $35,000
2007-10-16 05:21:35 · update #1
I pay the $5000 off first. Kick Sallie Mae out to the curb! The advantage to paying the $4820 is that once it's gone, you get that debt out of the way, and you can put all your focus on paying the 2nd mortgage off! I rather have one debt to pay then 2 debts.
2007-10-16 16:52:49 · answer #1 · answered by Gary 4 · 1⤊ 0⤋
You're better off to knock down the principal on the bigger high interest loan, because the interest will then be recalculated and reduced due to the lower principal (you won't get a different monthly payment, but the payments will stop earlier). Although psychologically you would feel better getting rid of the smaller loan.
2007-10-16 15:48:25 · answer #2 · answered by FM 4 · 0⤊ 0⤋
What are the interest rates? But even you didn't mention that, I have to say definitely pay a portion of higher-interest loan. I understand the psychological feeling you will get to pay off one loan, but you have to pay a price for it. And the bottom line is to eliminate debt SOON as you can, so pay off the higher interest one and you can pay off earlier and get the "real" relief and freedom of paying off debts. Good luck!
2007-10-16 11:47:58 · answer #3 · answered by Anonymous · 1⤊ 0⤋
What I would do is pay off the one with the smaller balance, eliminating the interest you're paying on it. Then take what you were paying on the smaller loan and apply that to the larger loan, meaning add what you were paying for the small loan to what you are paying for the large one, thus paying the large one off sooner than you had figured. You don't say what kind of loan the large one is, but make sure you aren't penalized for paying it off early, and that the extra funds are paying down the principal.
2007-10-16 11:07:00 · answer #4 · answered by The Dragon 7 · 2⤊ 1⤋