advice on what to pay down...

[jodi]

Okay, I think I have figured out what to do with my tax refund, but I like to hear the opinions of others as well...since I know you guys all are so knowledgable on all things financial!

DH and I, thanks to a very low income and several credits that are new to us this year (EIC, education credits, etc.) will be getting nearly $4500 back. We have several options. Some background - we have an emergency fund that has enough money in it, so there is no need to save more. We have the following debts:
1. car loan, app. $6500, 3.75% interest
2. my student loan, $6700, about 4.4% interest
3. DH's student loans, $15k, in deferment (no interest accruing)
4. one cc, currently at 0% for a few more months, $1900

So, my original thought was to use $2k from the emergency fund (we can spare it, as long as we pay it back soon, which we would be able to do) and just pay off my student loans. I really, really want to be rid of that. However, then I realized that even though it has a higher interest rate than the car, I am able to take a tax deduction on the interest every year. This year we took a $750 deduction for the interest on both loans (before DH's was deferred) - I think about $400 of that was for my loan. At our current 10% tax rate, that would save us about $40 per year, or $60 at our usual 15% rate, which we may be back up to next year (am I doing this right?). There would only be about $20 difference in interest yearly between the car loans and student loans, so that means I would save more by paying the car loan off first and taking the student loan interest deduction longer...I think.
Or...I can pay off the cc and only pay a portion of the car loan (or student loan)...if I were not going to be able to pay off the cc before the rate goes up, I would definitely do this. However, I know we will be able to pay that off.
Advice? What would you do? Does it really make that much of a difference in the long run? Thanks!

[Fizgig]

This is just my opinion...

Pay off the $1900 credit card. Sure, right now it's 0%, but you said that's only for a few more months. I don't know what rate it will become after that, but chances are it'll be higher than any of your other debts. You said you'll pay it off before the rate increases, but why wait?

Put the rest on your car loan, and consider accelerating your payments on the loan with the money you would have put towards the credit card.

[twins0203]

I would put it all on the student loan since it has the highest interest rate. Once the 0% runs out on the credit card, either pay it off if possible, or signup for a new 0% BT CC and just transfer the balance.

[TBH]

I'm with Fizgig. Kill the most volatile debt (the CC) first, then snowball your car loan. If you put 2000 toward the CC, and 2500 toward the car, that brings your car loan down to $4000. You said you expected to be able to pay the CC off before the rate goes up. If you pay it off now, and throw that money at the car loan, your car loan should be down to $2000 by the time your CC rate would have gone up.

Wow, maybe you'll be down to only student loans by the end of the year. How great would that feel?

[Ima saver]

I agree with fizgig too. I would pay off the cc and put the rest on the car.

[sweeps]

After paying off the credit card debt, consider investing the money in your retirement rather than paying down the other debts. Your interest rates are relatively low, and the sooner you start investing the better off you'll be in the long run.

[jodi]

Oh boy, here I am asking you all for advice, just to ignore it. I decided today what to do, and the answer is None of the above! I finally got the statement from the car loan and we only owe $5700. The extra $20-50 I pay every month brought the balance down faster than I thought (it seems my bank is the only one left in the country that does not let you check your balance online - so I was a little off in my estimate). I am just going to get rid of that car loan, once and for all. The problem I have with paying off my cc right now is that I am not paying any interest at all on it, but still paying $20 interest every month on my car loan. Since I am certain I will pay the cc off before any interest accrues, I don't see the harm in waiting.
I feel like a dope asking for this advice then going my own way - but thanks to everyone! It helps to hear the pros and cons, but weighing what is most important to me (less interest and a complete debt elimination), I think this is my route...but then again, maybe I will change my mind before the money is in my hands!

[TBH]

Hey, you're using your entire tax return to pay down debt. I probably would give myself permission to blow ten percent or something. So you're doing better than I would do.

[shelbylovesmelby]

I would pay off the credit card & then pay tward your car loan. Afterall most vehicles depreciate faster than someone with a 5-7yr loan could ever pay it off. Your student loan I would also consider but think about the fact that you can write off the interest. Then if anything put some $ aside for dh's student loan, maybe in a cd for a similar length of time to put tward it when he is in repayment.

[Ima saver]

She has decided to pay off the car and tackle the credit card debt. Good for you and good luck! I 'd feel a lot better if I had my car paid off.

[Well Spent]

Jodi M

what are the education tax credits and how do you get them?

[sweeps]

Originally Posted by Well Spent

what are the education tax credits and how do you get them?

Answer

[Well Spent]

thanks so much!

[jodi]

Actually, I mispoke - thanks for the excellent article on the education credits. We took the $4k deduction, not the credit. I LOVE Turbotax because they figured it all out for me...I would still be scratching my head otherwise. We could not take the Hope credit because DH already has his undergraduate degree (he's not in his first two years of school - they started this right after we finished our sophomore years in college!).

I thought of another benefit to paying off the car loan - more $$$ in my pocket (to pay for other things) every month, as my car payment is $185, but my student loan is only $100. We sent in the returns today, so I should be car loan-free within two-three weeks!