How would you use this money?

Question

I have $16,000. I am going to use this money on debt but I don't know which avenue I'm going to take.

Option 1- Pay 16,000 on a 28,000 car loan w/ a montly payment of $513.00

or

Option 2-Pay off some credit card debt. If I do this, it'll leave me w/ a montly payment of 1100. I'm in the hole big time over here.

Either way, I am having trouble paying both..and I'm looking for the best way I can to try to have more money in my pocket each month. I have a good feeling in a month or so I won't be able to pay the credit debt at all.

Which is worse, a default on credit cards on your credit report or a repossession of a vehicle?

I'm not behind on any payments as of now.

Answer 1

You need to look at interest rates, not balances on your debt.

Reducing the debt with the highest interest rates will save you the most money in the long run.

For instance if your car note is 8%, and your credit cards vary from 5-25%, I would pay off the highest interest credit card first, then down the line.

As you appear to be heavily in debt, you really have to eliminate the debts that cost you the most.

Answer 2

Here are my thoughts. You should pay down the credit card. The reasons are simple. First, it is probably at a much higher interest rate than your car loan so it is costing you more. But secondly, if things get really tight down the road, you can always sell the car and payoff your auto loan. You cannot do the same with credit card debt. It is unsecured and has no asset attached to it.

Personally, I think you should sell the car anyway. With that much credit card debt and other payments, I find it very hard to justify a 28,000 car loan costing you over 500 per month. Vehicles are the easiest way to exhaust your finances.

Answer 3

Sorry to hear that u r having hard time to pay off ur debt. Like other suggestion i would also say sell ur car and buy an economy size car until u can stand up ur feet again. Also pay the higher interest c.c first.
U have already heard all these suggestion but i would contribute only to the extent that if u have a feeling that u wont be able to pay ur card in coming month. Dont use all $16,000 to pay off any loan. Talk to the creditors and tell them u wont be able to pay for few months. In case they do not agreed that use ur 16,000 toward cards. In this way u wont miss any payment even in ur struggling time.
Note: if u miss/late any payment; these credit cards companies increase ur APR and it can go up to 32% too.
Trust me they r all ******.
Make rational decision.
Good Luck

Answer 4

You should sell the car. Even if you have to take a loss use some of that money to pay the difference on what you get for the car and what you owe. That will save you $500 a month right there. Then pay some towards credit credit but keep about $4000 - $6000 of that money for a rainy day. You should cut everything out of your budget possible and really watch the money you spend. If you want to get the debt paid off you must focus and really want to. You should get a book by Dave Ramsey called " The complete money makeover". Happy Holidays

Answer 5

starting with which is worse... they are all bad.. but it is worse to have multiple defaults on credit cards versus 1 repossession. It is just mathematics.

For the money, my advice is, pay off the highest interest rate cards first, then switch any remaining balances to the lowest rate card you have if you can.. this will lower overall interest payments out on credit cards.

You should not close out the cards yet, but cut them up.. do not use them. If you close them, it will drop your credit score since your utilization of available credit will be so high. Call the credit card companies and ask them if they will lower your interest. They will often say no, but just insist, and go to supervisors if you have to (this is provided you have paid well).. if you have paid poorly, then talk to them and tell them you are in danger of defaulting on your payments, and could they suspend interest for 12 months so that you can get things back under control.

You need to find an additional source of income, deliver pizzas with that 513 dollar a month car, or do whatever you have to... take ALL of the extra money, and instead of buying a plasma TV, pay down your credit cards as rapidly as possible.. once the cards are paid off, DO NOT USE THEM.

Then apply everything you can to your car note to pay it off, and do not trade in on a new car because you are bored with the old one.... drive it till it falls apart, in the meantime, keep banking your paychecks in savings

Answer 6

I would...
sell or trade in the car for a much, much cheaper one.
If you make money from the car, than you can use that with the 16,000 you have to put toward your credit card. Also, if you are looking to increase how much you have in your pocket, look for ways to cut back your expenses. Do you have cable or internet? Cancel them. Do you smoke? Quit. Do you have animals? Get rid of them. Shop at cheaper stores. Don't buy the most expensive clothes. If you have a lot of expensive clothes, sell them. Same if you have a lot of fancy electronics. Chances are, if you are willing to do it and make sacrifices, you can get out of debt. Oh yeah, cut your credit cards up. That way, if you do pay them off, you want run them back up again.

Answer 7

Paying down the credit card would be the best bet as i'm guessing the interest is a lot higher than your car loan.

I would say default on credit card as the car is still worth something and you will end up having to pay the difference later on.

Answer 8

I'd vote for 2 and suggest you consider selling that car and getting something that costs substantially less if you really need a vehicle. Definitely try to decrease your spending and while the $16K has to be a good start, see if you can earn more. At holiday time, lots of places are looking for extra help, so could be a great opportunity to give yourself the gift of getting out of debt.

Answer 9

You don't have to use it ALL!! Just use what you need to get caught up on your car note, and your credit cards and just keep the rest of the money for emergency purposes only!

Answer 10

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