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Which to Pay Off


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17 replies to this topic

Poll: Pay off car or credit cards? (12 member(s) have cast votes)

Which should be paid off first?

  1. Pay off the car. (3 votes [25.00%] - View)

    Percentage of vote: 25.00%

  2. Pay off the credit cards. (9 votes [75.00%] - View)

    Percentage of vote: 75.00%

Vote Guests cannot vote

#1 coda333

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Posted 14 February 2012 - 01:32 PM

Hello all,

I am in a pickle here and would like some advice on what I should do. In preparation for a recent move, I was charging everything to a couple cards that had intro 0% apr until September and putting all the money I charged into savings in case it took me a couple months to find a job (yes - quite the risk). I was able to find a job almost immediately, and now I can't decide what to do with that chunk of savings.

The way I see it, I can either pay off my auto loan (8.9% APR, $275/mo, $3700 remaining) because I'm still on 0% interest on the cards until September. The only problem that I'm seeing is that I probably wouldn't be able to pay off the entire balances of the cards by September (I have about $3500 on credit cards combined). To resolve that problem, I could do a balance transfer on an existing or new card. However, I'm starting to think it might be a smarter move to just pay the cards off to make sure they're at $0 and keep paying as much as possible on the car...

Ugh... I'm thinking my way in circles here and could use a push in one direction or the other. Sorry about the novel (let me know if i left anything out), but what do you guys think?



#2 uptomyneck

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Posted 14 February 2012 - 01:45 PM

Did you calculate in the alleviated money from the car note into your debt reduction payment, if you were to pay off the car? Will your insurance rate drop as well, alleviating more money?

What are the % rates on the CC after the promo is over?

#3 twizzle

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Posted 14 February 2012 - 02:36 PM

The way I see it, I can either pay off my auto loan (8.9% APR, $275/mo, $3700 remaining) because I'm still on 0% interest on the cards until September. The only problem that I'm seeing is that I probably wouldn't be able to pay off the entire balances of the cards by September (I have about $3500 on credit cards combined). To resolve that problem, I could do a balance transfer on an existing or new card.


If FICOs weren't an issue for me, as in I won't be needing to worry about my scores in the immed future, I'd pay off the credit cards now and transfer the remaining car balance to a 0% card. Then I'd be paying that down before the rates went up.

If FICOs were an issue, I'd pay off the credit cards except one which I'd keep <9% util, and work on leisurely paying the car down. But that's me.

Edited by twizzle, 14 February 2012 - 02:43 PM.


#4 road2freedom

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Posted 14 February 2012 - 02:58 PM

You could always pay the cards off and then take a 0% BT offer to pay off the car, turn around and pay what you were paying towards the car + credit card payments towards the new balance.

#5 coda333

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Posted 14 February 2012 - 04:47 PM

Did you calculate in the alleviated money from the car note into your debt reduction payment, if you were to pay off the car? Will your insurance rate drop as well, alleviating more money?

What are the % rates on the CC after the promo is over?


I'm not sure what you mean by your first question (pardon my ignorance), maybe you could dumb it down for me. I didn't know that my insurance could go down. That opens another can of worms, as my move was to a different state and I haven't found a permanent address. I haven't transferred my title, registration, insurance, or any of those things yet. I'm not sure on the CC rates after promo (I'd have to look to find the exact number), but I'm pretty sure it's 11-12%.

If FICOs weren't an issue for me, as in I won't be needing to worry about my scores in the immed future, I'd pay off the credit cards now and transfer the remaining car balance to a 0% card. Then I'd be paying that down before the rates went up.

If FICOs were an issue, I'd pay off the credit cards except one which I'd keep <9% util, and work on leisurely paying the car down. But that's me.


You could always pay the cards off and then take a 0% BT offer to pay off the car, turn around and pay what you were paying towards the car + credit card payments towards the new balance.


My credit score is definitely not an issue and won't be for a couple years. After my car is paid off I'm going to drive it into the ground and save money for another. Opening another card at 0% for a year or longer is a great idea that I hadn't thought of, but I also don't know if I want to open another card. I currently have 3 cards that are all relatively new.

I'll look into other cards available with 0% promos, but what would you guys do if it didn't involve opening another card?

#6 MarvBear

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Posted 14 February 2012 - 07:44 PM

Would the original poster prefer that I move this topic to the money management forum for more views and replies?

#7 twizzle

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Posted 15 February 2012 - 07:07 AM

I'm not sure what you mean by your first question (pardon my ignorance), maybe you could dumb it down for me. I didn't know that my insurance could go down. That opens another can of worms, as my move was to a different state and I haven't found a permanent address. I haven't transferred my title, registration, insurance, or any of those things yet. I'm not sure on the CC rates after promo (I'd have to look to find the exact number), but I'm pretty sure it's 11-12%.


My credit score is definitely not an issue and won't be for a couple years. After my car is paid off I'm going to drive it into the ground and save money for another. Opening another card at 0% for a year or longer is a great idea that I hadn't thought of, but I also don't know if I want to open another card. I currently have 3 cards that are all relatively new.

I'll look into other cards available with 0% promos, but what would you guys do if it didn't involve opening another card?


Coda is just asking how much do you pay per month for cc's and how much for the car payment? Once you pay one off, are you then planning to take that payment and add it to the other to speed up paying it down?

When you have a car loan you have to carry liability, collision, & comp ins. Once you don't have a loan, you can sometimes drop collision and comp, which will lower your premiums (but can add other issues), but that's a decision you'd have to research. The level of ins you should carry depends on many things that can include state law, your financial situation, age of car, personal comfort w risk, etc.


For ex, our state has no ins reqs, but we have an '02 sedan we own outright. We only have liability on her. If she got totaled tomorrow in an accident, it wouldn't be a big deal to us. She's worth less than the amt we'd have to pay to keep her fully insured with comp & collision. We also have an '05 SUV that we carry full coverage on. She's worth a lot more, her mileage is much less, she's newer. She gets totaled, it would be a financial strain, so we still fully cover her.

As far as the credit cards, you said "

To resolve that problem, I could do a balance transfer on an existing or new card."




You don't have to open a new card, unless it something you want to do. As FICOS aren't a concern, I'd pay down the cc's. I'd BT the car to an existing card w a lower to 0% rate and pay it down as fast as I could before the transfer rate was over. If there's not an opportunity to BT on existing cards for a bit, I'd still pay down the cc's (as the interest rate seems to be higher), pay down the loan as quickly as possible, and seize any opps to BT that might come up.




But again, that's just me. I'd be trying to pay it off as quickly as possible for the least interest as possible.



#8 mk_378

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Posted 15 February 2012 - 08:24 AM

I had an old car with only Liability coverage, and when someone crossed the center on a two lane road and sideswiped me, their insurance company simply refused to pay anything. Your insurance company will also be of no help in that situation. If I had Collision they would have either made the other company pay up or paid me directly. So the bottom line is when you're a safe driver, keep Collision on any car that you can't afford to just walk away from.

Edited by mk_378, 15 February 2012 - 08:24 AM.


#9 coda333

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Posted 15 February 2012 - 11:29 PM

Would the original poster prefer that I move this topic to the money management forum for more views and replies?


My apologies, I wasn't sure which topic would be best. If you think it would fare better in a different section that would be great! I'd also like to hear any input you might have, as you are the expert : )

Coda is just asking how much do you pay per month for cc's and how much for the car payment? Once you pay one off, are you then planning to take that payment and add it to the other to speed up paying it down?

When you have a car loan you have to carry liability, collision, & comp ins. Once you don't have a loan, you can sometimes drop collision and comp, which will lower your premiums (but can add other issues), but that's a decision you'd have to research. The level of ins you should carry depends on many things that can include state law, your financial situation, age of car, personal comfort w risk, etc.


For ex, our state has no ins reqs, but we have an '02 sedan we own outright. We only have liability on her. If she got totaled tomorrow in an accident, it wouldn't be a big deal to us. She's worth less than the amt we'd have to pay to keep her fully insured with comp & collision. We also have an '05 SUV that we carry full coverage on. She's worth a lot more, her mileage is much less, she's newer. She gets totaled, it would be a financial strain, so we still fully cover her.

As far as the credit cards, you said "

To resolve that problem, I could do a balance transfer on an existing or new card."




You don't have to open a new card, unless it something you want to do. As FICOS aren't a concern, I'd pay down the cc's. I'd BT the car to an existing card w a lower to 0% rate and pay it down as fast as I could before the transfer rate was over. If there's not an opportunity to BT on existing cards for a bit, I'd still pay down the cc's (as the interest rate seems to be higher), pay down the loan as quickly as possible, and seize any opps to BT that might come up.




But again, that's just me. I'd be trying to pay it off as quickly as possible for the least interest as possible.



I wasn't aware of the insurance information, and I really appreciate the info. I'll look into my state laws and figure out what to do. My car is getting old, so it might make more fiscal sense for me to switch up the coverage. I need to do more reading on here!

If I pay off the car I would definitely be putting the previous minimum car payment toward the cards. I would hate to have any balance on the cards after the promo is over, but I've been looking forward to having this car paid off for SO LONG that it's tempting.

#10 MarvBear

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Posted 16 February 2012 - 06:54 PM

Moving to the money management forum for more views and replies.

#11 coda333

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Posted 16 February 2012 - 09:31 PM

Thanks Marv.

It looks like everyone is thinking I should pay off the cards first. I'm surprised that there aren't any votes for paying off the car as I will be accruing interest on the car and not on the cards (at least until September). It might be me wanting to be done with these car payments already, but it seems to make more sense for me to pay off the car...

#12 road2freedom

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Posted 16 February 2012 - 11:40 PM

I guess it was kind of unclear what your intentions were when I first read this. Are you looking for the method that will save you the most in interest or the method that would pay off the car or cards faster? How much money do you currently have saved up? How much total are you paying towards those cards monthly?

#13 Kevin20

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Posted 17 February 2012 - 12:17 AM

There are a lot of variables that could put to financial analysis. But fact is, I for one find it very compelling to make a modest "investment" that immediately pays out $275 in "dividends" each month. That increases your effective income and cash flow by $275, which is pretty sweet, and (most likely) a much better bang for the buck as opposed to applying the same money to credit cards.

I recently received a chunk of money and the first thing I did was amort my car loan for this very reason.

Mind you this isn't textbook financial analysis. A more textbook approach would be to do whatever most increases the net present value of your projected net worth, factoring all the variables. Or something like that. But then you're not a cooperation, you're a dude who's a step away from getting a $275 a month raise. And since you can't go out and run up a car loan balance the way you could easily run up a credit card balance -- the last thing you want to do is use the money to pay down your credit cards and then go on a shopping spree and run up the balances again -- it might be the most prudent move. Get that $275 boost in cash flow and develop a new monthly savings budget based on that.

#14 twizzle

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Posted 17 February 2012 - 07:12 AM

It looks like everyone is thinking I should pay off the cards first. I'm surprised that there aren't any votes for paying off the car as I will be accruing interest on the car and not on the cards (at least until September). It might be me wanting to be done with these car payments already, but it seems to make more sense for me to pay off the car...


Not sure why you'd think that? I'd only keep the car loan if you cared about FICOS. But since you don't, I'd pay off both. After all, you said you had the option to BT, so paying off the cards and then paying off the car via BT and then paying down BT ASAP is still the suggestion I'd make to save you $.

You just have to make sure to use that $275 to pay off the BT before the interest kicks back in.



#15 coda333

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Posted 18 February 2012 - 08:33 PM

Ok... so is there a difference between doing a BT on the cards rather than the car loan, or am I right in thinking that it's all the same?

#16 Frank13

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Posted 20 February 2012 - 08:13 PM

Pay off the car now ... save the interest and have an additional $275/month cash flow.

Take that $275 along with the current $35-$70 you are paying on the credit cards and you should be within a few months of paying off the credit cards when the 0% promotion expires.

#17 coda333

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Posted 21 February 2012 - 06:40 PM

Thanks, everyone, for the advice!

#18 creditrules

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Posted 23 February 2012 - 10:23 AM

If you pay off the car loan, will you still have to pay interest based on the original period of the loan? I was under the impression that some car loans are written that way.

Also, if you have any balance left on the credit card when the 0% interest period ends, will they charge you back interest, or will it just be 11-ish% moving forward?




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