I am having a hard time deciding which to do and would like your opinions and ideas...
Should we pay off dh's truck and use that money to pay down our credit cards?
Or should we follow the golden rule and pay off our highest interest rate card?
Both the cards and truck all have an apr of between 5.9% and 7.9% so not really a huge difference to sway me.
I like both ideas, 1. being down to one card having paid off the other AND 2. paying off the truck freeing up a few hundred dollars to pay down the cards.
So I need help deciding. Is there any benefit to paying off a vehicle early?...we will be keeping it no matter what for at least another 3years. So its not like we'd go trade it in just cuz it would be paid off.
Well if you pay off the truck you would no longer have to have full coverage and your car insurance premium would decrease which would open up more money to use to pay down your credit card. (Of course you want to continue to make at least the minimum payments in the meantime).
Whatever you decide, you're thinking and planning in a great direction. Debt freedom is so liberating and I'm glad to see more people going this route. Keep us updated on what you decide and your progress.
God Bless!
I don't know how much your husband's truck payment is or how much you are paying monthly on your credit card payments but I personally would pay off which ever you are paying more on ever month that way you are freeing up more money to put toward which ever one you decide not to pay off. Stephanie made a valid point though if you pay off the truck you no longer are required by the bank to carry full coverage on the truck. Good luck with which ever you decide I think it is great that you are trying to pay off things & become debt free.
I am guessing that the payment on the truck is higher than the minimum payments on the cards. I would therefore suggest paying off the truck faster, while making minimum payments on the cards. Then, once the truck is taken care of, you can use the extra money to pay off the cards. At that point I recommend going with the highest interest one first.
Something else you may want to consider, often times credit cards will be willing to allow you to consolidate other cards to them at a lower interest rate (if you have room available to transfer the balance). Also, they will sometimes lower your interest rate if you simply call them and ask them to, explaining that you are trying to get out of debt.
Money is money. Stick with paying off the highest interest item. If it is a credit card, don't run the amount so high again that you can't pay it off every month. Try to always pay off your cards (once you have a good credit history) every month and avoid the finance charges. Then use the payment you would be making on that card to pay more on the next highest interest item, and so on. In the end, you will be ahead in dollars.
Linda
I would pay off the highest interest item, which I would assume are the credit cards. Having a large balance on your cards isn't good for your credit, and even if it the interest rates are just a couple of points higher it will still cost money. Also, you never know what may happen to the truck- it would be a shame to get it paid off and then get into an accident and have to start another car payment.
The only reason I would consider paying off the truck first is if you owe the bank more than the truck is worth, because you don't want to be upside down on a loan. However, trucks tend to hold their value so I doubt this is the case.
Good luck to you!
I would definately pay off the credit cards first. You have equity in the truck and the longer you pay on it the better your credit will get. If you do the same with the credit cards, it will do nothing for your credit. Credit cards do more harm than good for your credit seeing it is considered "unnecessary" debt.
Just my two cents :)
Credit card first! There is no benefit to paying off the truck early. The interest rates for the car and the card are not the same thing. For the truck, it's fixed, it was calculated when you bought the truck and doesn't add up any more.
Look up revolving interest and how it works - for the credit card company!
-Sarah Kav
P.S. I kept my Ford Escort for 14 years, ran it into the ground, then bought my Saturn, and I will do the same with it. I can't see having a car payment for the rest of my life.
I would go for the CC first...highest interest rate first...then "snowball" the payments to the next card...then the next...then take all of that snowballed money and put it towards the car payment once ALL the CC's are paid! you can find more info on the snowball effect on Oprah's website...search Debt Diet!
Have you considered applying for a new credit card with no annual fee and a 0% APR for an introductory period, then transferring your balances to the 0% card? This way you don't get charged any interest at all and all the money you put towards paying down your credit card goes straight to principal.
As far as the truck or the credit card goes. A truck is a depreciating 'asset'. I wouldn't even think of it as an asset because it loses its value so quickly. It's more like a necessary evil.
So I'd pay off the highest interest item first and go from there. And if your answer to the above question is I can't get another credit card. Try paying one off in full (highest interest first) and then trying again to get another no annual fee, 0% introductory APR to transfer the remaining balance onto so when you're paying in the future it goes straight to principal.
Be careful though because when the introductory APR period is up, you may want to take a pair of scissors to the card since the regular APR may be sky high. As long as you are disciplined enough to do that then that is the course of action I would recommend.
Good luck! :)
Hi Kristi,
There is much to be said about living debt-free. You don't say whether you have a lump sum of money to pay off one of these debts. If you are just looking at increasing the payment on one of them, I would avoid the truck, however, if you have the cash to pay this off in full, that would free up a good chunk of money to apply to the other bills. It sounds like you have competitive interest rates on your accounts. I personally like the approach of throwing all your extra cash towards the account with the lowest balance first. There are lots of psychological benefits of eliminating a debt. Then you move on to the next smallest balance, etc. Whatever you decide, best of luck & you are definitely moving in the right direction.
Kristi
P.S. Due to the financial crisis our country is in, I would strongly caution you to have a savings account for emergencies. If you don't have one, work on building that up a bit before you start aggressively going after the debts. This seems counter-intuitive, but you never know when a job loss will affect your family & you want to make sure you have a safety net. Best of luck!
I would definitely pay off the truck that way you have more money every month and if you wanted you could pay more on the cards every month. I hate car payments.
One benefit, though I don't know with your insurance what actual numbers would be, is that once you pay off a car, car insurance comes down. That way the company doesn't have to pay back a bank and possibly pay for a bunch of other things should there be an accident that totals the vehicle. (They'd pay what the vehicle is "worth", possibly some car rental, etc., instead of paying the bank what is owed, possibly some extra for you, as well as rental, etc.) I know we're getting ready to pay off our loan early and we're looking at the 6mo. premium dropping about $50. It's not much, but we live paycheck to paycheck, and that extra $100 annually will help us out with groceries, kids' clothes, etc. It might be worth checking out with your insurance before making a decision.
Hello,
Which has the higher balance? Pay off the one that has the higher balance and when that is gone add additional payments to the one that is left.
It will go quicker paying it off then you realize.
Good Luck
KRW
I would suggest the credit card because you never know when they are going to sneak something in on you. The credit card is a reacurring charge when the truck is not. You can't add things to the balance of the truck when you can the credit card. So pay off the card and put it away or cut in half. Watch Suzi Orman and she would say the credit card for sure. Good Luck on your decision.
Shannon
Kristi,
According to everything I've read, you should pay off the debt with the highest interest first. However, I've read in a few places that there is an exception to this -- if you have a smaller balance on the truck and can pay that off sooner, which would free up extra $ to pay off the card, then it might be advantageous to pay off the truck first. I guess you really have to check your balances and decided which is the better way to go financially and which will get rid of the debt the fastest.
Best of luck!
Yes there is a benefit to paying off your truck early: You save lots of money on interest! I would choose the option of paying off the truck. AF
common logic is to pay off the card first, but I would suggest the truck. Once it's paid off, you can change your insurance from full coverage to liability (if you want) and save several hundred a year (usually).
The best thing is to pay off the highest interest rate first. They may all be close in % but a few points adds up. Also if the car has a lower %, one of the reasons to go for the credit card is tangibility. If something happens to you, the car loan people will come after the tangible car. The credit card people don't have a lien on something tangible so they come after EVERYTHING. Rule of thumb for borrowing is to not leave a balance for anything that you can't sell or take back. That isn't always possible for me but I try.
Pay off the credit cards first. They're just straight debt. At least the truck itself is an asset, so the debt behind it is not quite so ugly. Just be careful not to rack up the credit card bills again!