Deffinitely pay off the card. I can tell you from experience this is the way to go. For one thing, the cards hit you up with finance charges and they can eventually increase the rate. You can literally pay on a credit card for life-they just never go away. I can gurarentee you that if you pay the minimum each month, it will never go away. The good thing with the vehicle and any bank loan, is you know where you stand. Rates won't change and if you signed on for a 5 year loan, or even a 10 year, you know there is a light at the end of the tunnel. In that time frame you know for sure that debt will be gone. You can never put that kind of time frame or certainty on a credit card. Good luck!!!
Kristi:
Hello! Coming from a person who has been there and done that - pay off the credit card first and NEVER use it again. My husband are debt free (with the exception of our mortgage) and do everything via cash (debit card).
Keep in mind - when using a credit card means you really can't afford it. So you buy something you REALLY WANT and pay $195 for it on the credit card - if you make your minimum payments each month - it will take you 3 years to pay off that $195 and cost you $554.56 - was it worth $500? (take $195 multiplied by 7.9% = 15.41 (for one month) multiplied by 12 (184.92) by 3 years 556.56 - that's just the simple math and doesn't include anything else you put on the credit card.
I can't tell you how hard it was to NOT use credit cards and going to CASH ONLY - but it was the best move we made. I took us 1.5 years to pay off our credit card debt and we made a HUGE life change in doing that. I took stock of what we had that we didn't use and had a yard sale (several really) and made $1,000 that paid off a credit card. Then I went looking further and realized all the stuff we don't use on a monthly basis and sold it on ebay - if it didn't sell, I donated it to charity. Got rid of excess - it's the keeping up the Jones' or even all the media explotation of NEEDING more - bigger TVs, newer cars, etc. When you get back to basics, you realize all that you really need and want.
The truck is a stable payment - it won't change. It will be the same over the term of the loan. As long as you don't fall behind, you won't lose anything. You plan on keeping the truck so really - use the money on the thing that can ruin a family faster than anything else - credit cards.
If you have enough money to pay off the credit card - I will assume that you already did your taxes and are receiving a refund.
Seriously consider going to a cash only basis. I can't tell you it will be easy or fun. But really, a year from now - you will be in a new boat and won't want to go back. Use coupons to save additional money - make weekly menus to help you save money in grocery shopping.
Make a conscious decision to take charge of your life - instead of spending $40 to go to a movie - wait for it to come out and rent it instead. Need a date? Find a babysitting co-op. Or trade with a friend - we have a friend's son over and they take our boys too.
When shopping - if you are going to put it on a credit card - ask yourself "how much is this really going to cost me?" And "is it worth it?" If you are not going to pay your credit card(s) off every month, then anything you purchase now will cost you more in the long run. Don't think for the moment - think for the future too.
If your husband lost his job - what would your family do? If you don't have credit card debt, you would have a savings account and not have to stress too much.
Since you enjoy crafts - maybe some of the stuff you make could be sold on ebay. That would bring extra money in to the house as well.
I know this is long. It's such a hard decision to go to cash only - especially if you've been using credit cards a long time (I'm 42 and got my first credit card at 18 and at one point had over $60K in credit card debt with NOTHING to show for it. The clothes, shoes and meals weren't worth what I had eventually paid for them - even the electronic stuff - not worth what I ended up paying for them.
Take good care. Know you are not alone. Make the right decision for you and your family's future, not just the here and now.
Best regards,
Cheryl
Every Financial Advisor I have ever talked with has recommended paying off the credit cards first. If you can afford to put an extra 50-100 dollars a month towards the truck payment to help pay down the principal that would be good.
See, the card payment can go on and on and on with additional purchases and fluctuating interest rates, fees, etc. Check with your credit card company about their payment policies. Some will penalize you for paying it off 'too soon'. (Yeah, can you believe it?) Even if you have a 'great rate' on your card, you should call the agency & negotiate a lower rate. So if you're at 5% see if they'll lower it to 3.5% with the expectation that they will go to 4%. You can play up on how good of a payment history you have, the current market, down sizing your debt (but you want to keep them as your credit card company) so how can THEY help YOU with your current interest rate. If they won't drop your rate, consider playing the credit card game and find a card company that is offering a super low rate for a short time period (like 12 months) at a lower rate than what you are at now and transfer the balance of the higher % card to the new one and close the old account. I've seen people do this 'game' and never pay more than 2% on their credit card balances. It requires a little work up front and attention to details (transfer fees, early payment fees, etc) but if you keep up with it, you can really benefit from it.
Most vehicle payment are set for a fixed number of months and, again, check your loan contract to see if there are penalties for paying it off early. IF there are penalties for paying it off early, do some shopping around, see what else is available. Also, see if you can re-fi with the same company and or get a lower rate. Some companies will do a re-fi at a lower rate to keep your business.
Bottom line: Pay off the credit card first, vehicle second. Most everyone has credit cards (big deal) but car payments reflect greatly on your credit score, especially if you pay it off early. Hope this helps :)
Ways to triage debt repayment:
1) Pay highest interest rate first. For you, this is not a factor, so it doesn't help.
2) If interest rates are the same, pay off the lowest balance first so you have less number of separate loans to pay.
3) If interest rates are the same and balance amounts are the same, then first pay off the one that has any extra fees, like yearly maintenance fees or memberships.
4) If there are no other fees, and all else is all equal, then pay off the one that annoys you the most!
Best wishes for happy debt repayment!
personally, especially if the rates are close, i'd start with the credit cards. highest first then the truck. credit card companies can unilaterally change your rates and your limit far more easily than the car loan holder. get the cards out of the way ASAP! i'd only pay off the truck first if it was at a WAY higher interest rate than the cards. good luck and feel blessed that your issue is where to send extra money as opposed to get to get enough for your minimums!!
if i were you i'd pay off the truck and then get a 0% card and transfer the balance over.
Paying off your truck could allow you to reduce your car insurance coverage and/or your deductible amounts.... that may be of some worth to you.
Also, when the time comes to trade it in or sell it, it's much easier when you own in outright.
However, paying off a credit card and closing the account might help your credit rating depending on how many accounts you have and your credit lines.
BEST WISHES!
Pay off the card!credit cards can change you rates if they want to - and the car payment rate is fixed I assume. Highest rate first!
I know I am late responding and you've probably already done what you are going to do but this is my advice for what it's worth. I would pay off 1 card. If you have $ left over, pay off as much as you can on the other card. Then I would talk to your bank about refinancing your truck and rolling whatever other debt you have in with it. If you have enough equity in the vehicle (it's worth more than you owe), you can do this. Interest rates are really low right now and your bank should be able to offer you a great rate assuming you have good credit. This would allow you to have 1 payment, no credit card debt and you could use all of the $ you've been splitting between the 3 payments to make the 1 payment and get that paid off ASAP. I'm a big believer in no debt - been down that road and don't want to go back! Good luck!
It depends on what kind of loan you have on the truck. Things to ask your creditor:
- Is there a penalty if I pay off my loan early?
- Do I save on the interest if I pay off my loan early?
Some loans are structured so your interest is calculated daily on the remaining balance of the loan. Those are the ones that can save you money if you pay them off early.
Other loans are structured so that the total amount borrowed includes the interest over the loan period (5 years, for example) and they take that total and divide it by the number of months in the term (for example - $25,000 total loan including interest/ 60 months for a total payment of $416.67 per month). Those loans don't make sense to pay off early since you have already paid all the interest up front and you don't see any benefits to expending the additional income to shorten your payment cycle. You are still paying $25K back to the bank regardless of how fast you do it.
If the second type of loan is what you have on your car, then just keep making the payments as scheduled and use your extra money to pay off your credit card debt. The other thing a lot of people don't know about their credit cards is that you can contact the creditors and ask them to lower your interest rate. If your credit situation has improved since you opened the account, and if you have always made your payments on time (even if just the minimum amount) you may qualify for a lower interest rate which can save you hundreds to thousands of dollars over the course of the time it takes to pay off your balances. The worst thing they can tell you is no, so don't be afraid to call and ask.
Good luck!
Meg
You didn't write the balance on either. I'm assuming balance on credit card is lower than that of the truck. If so, I'd work to pay off credit card, as long as I promise (and dh) promises not to charge again. Take credit card payment and pay off balance on truck. If you are still charging cause there's more outgo than income, work toward paying off truck and using that payment toward saving and credit card payoff.
Read the fine print on the truck loan before you pay it off. Make sure there are no prepayment penalties on it as well as how interest is paid. Many auto loans have you pay the full amount of interest you would have paid over the whole original amortization period even if you pay it off early. Also, it might be nice to have access to the line of credit on the credit card if emergencies arose if you were to pay that down. Which has a higher minimum payment that you are forced to make each month if you are trying to make your monthly payments less? Good luck.
Wow, great responses, and I think paying off the card won. The only thing that was swaying me was if I pay off the truck then I can make bigger payments on the cards.
The cards are not currently in use and were only to pay for our new roof and siding. We did use 1 card for a few necessity or large (over $100 but less than $200) purchases a few times. Both cards are sitting at 0% and have been. I think I will pay off the lowest card whose 0%apr expired in Feb. And I will have to transfer the other balance to another 0%apr card come July. The only problem w/ this is that there is a fee of $99 to do this and I have already done it twice. I figured it up though and that fee is still cheaper than paying interest, but I do not like that I have added $300 to the balance by doing this.
If we did pay off the truck first the whole insurance thing is a great idea but ours is so low right now that I dont think it could go much lower to make that big of a difference.
As for future debt. We are a cash only family. So we dont plan on incurring any more debt other than the house and cars.
Thanks so much for all your advice.