What to pay off first????

[donteverquestionmyfanhood]

Hello, this is my first time using this site and hope I am posting this under the correct section. Here is my situation...

Ive finally managed, over the course of a year, to stop spending money on stupid things and to save. I am happy to say that as of today I have ~10000 between my checking and savings accounts. This is where I need some advice...I have a credit card balance of ~4700 with an interest rate of 8.9%, and a car loan with ~8500 with a interest rate of 5.4%. My minimum payment on the card every month is roughly around 100 dollars a month, and the car payment is 325. My question is, what should I pay off? What helps me the most to get rid of? Also, the card has a limit of 10000 and I hear that it is bad to have a credit card with no balance since you're not using it.

Thanks for taking the time to read this, and I hope I can get some good responses.

[graceful]

Well congratulations on building up that EF!!

I don't think that it's BAD to have a credit card with no balance on it. Many people pay off their balances IN FULL every month. That's the way to do it.

However, the fear at this time is that if you use most of your EF to pay off your CC balance that the CC company might lower your credit limit to a ridiculous amount like $200 and you won't have your EF or a credit line to fall back on if anything should happen.

I'm not sure what I would do if I were YOU.

However, if it was my decision. I would try to keep my EF in tact and try to throw as much money at the CC balance as possible to pay it off first and as quickly as possible and hope that they don't lower your credit limit to next to nothing. If they do, you still have your EF to fall back on.

1) The CC interest is higher and can go up at any time so I would feel that I would save more on the interest.
2) The CC balance is lower so the pay off should be quicker than the auto loan.

Good luck whatever you decide. At least you made some sort of decision. Many people don't save and they don't plan on paying off anything except the minimums. So, you are already ahead of the game.

[croland]

That's great!

If I had the choice, I would pay the credit card off, close it out and then apply the payments you were making to the payment you are making to your car. I would also take the remainder of the amount you have after you paid your credit card off and apply it to the principal of the car.

Chris

[happygirl]

If I were you, I would keep 1-2k in your savings account for emergencies. I would pay off the credit card and put the rest towards decreasing your car loan balance.

If you come up with extra money in a month, I would put it toward paying off the car loan as quickly as possible.

Congratulations of getting this far towards financial freedom!

[Alex_Adviser]

With the Interest tat you have mentioned there is hardly much difference between the two. But as the experts say to pay the high interest debts faster, I'd like to suggest the same. However dont payoff the credit card in lump sum, as it could result in getting your Credit limit being lowered.

[creditcardfree]

With the Interest tat you have mentioned there is hardly much difference between the two. But as the experts say to pay the high interest debts faster, I'd like to suggest the same. However dont payoff the credit card in lump sum, as it could result in getting your Credit limit being lowered.

Hmmm...I hadn't heard that before. If it is true, two or three large payments over a period of time might eliminate that as a possibility.

[creditcardfree]

OP, I would pay off your credit card first because it is unsecured debt and has the higher interest rate.

I would consider not paying off the car, to keep the remaining money as an emergency fund. I would add the monthly credit card money to the car payment. According to my calculations, that would pay your car off about 7 months earlier!

I'd also look for other money to add to the car payment to pay the car off earlier. Survey money, rebates, cash in coins or aluminum cans, sell something on ebay...and so forth.

[Tree0164]

That's great!

If I had the choice, I would pay the credit card off, close it out and then apply the payments you were making to the payment you are making to your car. I would also take the remainder of the amount you have after you paid your credit card off and apply it to the principal of the car.

Chris

Exactly my advice as well-get those cc out of the way and then focus on the car payment.

Congrats on the building up the efund

[Runaway Finances]

Assuming you have no savings a year ago, then you have been saving about $800/mo. to get to having $10,000 now in savings. I would recommend you keep your savings and start sending that $800/mo and paying down the credit card. If you take the $100 you are curently paying on the card plus the $800, then you will have that paid off in just over 5 months. Then you can focus that $900/mo. plus the $325 car payment on the car. That means you would pay about $1225/mo. and have the car paid off 10 months from now. So, in less than a year you will have no debt and $10,000 in savings. This way if some unexpected expense comes along, it won't send you into more debt as you will have the emergency fund.

After you get the car paid off, send the $1225/mo to a "car fund". You can buy another car with cash if you will wait to buy another car when you have enough cash. Always send money to savings for a car as you will either have car repairs or you will need to buy another car. They don't last forever!

[autoxer]

Also, the card has a limit of 10000 and I hear that it is bad to have a credit card with no balance since you're not using it.

WRONG! It is not bad to have a credit card with no balance. That's what the credit card company wants you to believe, so they can keep taking your interest payment. Pay off that credit card and stop paying them interest.

[Runaway Finances]

(All that I'm about to write sounds boastful, but I'm trying to dispel some of the comments I have read on this forum) I've never had a balance on a credit card. In fact, I've never had more than two credit cards at one time, and most times I have had only one credit card. I have a huge credit limit which I have never asked for (the company just sends letters raising the limit). Rarely have I ever charged near the limit in any one month. I have never had trouble qualifying to buy a house. I pay cash for cars, but early in my marriage I borrowed for a couple of cars and never had trouble getting loans. But, I would also only get 1-2 year loans too. If you have money in the bank, and not much debt, then getting loans normally is not tough. It may be tough in the current economy, but these are not normal times. I hear people say it hurts your credit to cancel cards. I have cancelled cards and it has not affected my credit score. I have one card now, and my credit score according to the agency is "Excellent". Credit scores aren't important if you aren't borrowing, but some employers check credit scores plus you need a good score when buying houses or even renting.

[msmorrisonspeaks]

Pay off your credit card debt.

Hello, this is my first time using this site and hope I am posting this under the correct section. Here is my situation...

Ive finally managed, over the course of a year, to stop spending money on stupid things and to save. I am happy to say that as of today I have ~10000 between my checking and savings accounts. This is where I need some advice...I have a credit card balance of ~4700 with an interest rate of 8.9%, and a car loan with ~8500 with a interest rate of 5.4%. My minimum payment on the card every month is roughly around 100 dollars a month, and the car payment is 325. My question is, what should I pay off? What helps me the most to get rid of? Also, the card has a limit of 10000 and I hear that it is bad to have a credit card with no balance since you're not using it.

Thanks for taking the time to read this, and I hope I can get some good responses.

Pay off your credit card debt. It's usually the debt with the most interest. So pay it off first. Better yet, don't accumulate it in the first place. One more thing, pay all credit card balances in full each month. Leaving a balance on a credit card account will leave you susceptible to a very high APR. You may as well be throwing cash into the fireplace.

[Broken Arrow]

I'm not really adding to anything that hasn't already been said but....

If I was in that situation, I would pay off the credit card immediately. Paying it off is actually GOOD for you because it lowers your credit to debt ratio, AND shows that you are capable of paying off a revolving credit on your history.

It's only bad in that the credit card company can't make money off of you then. They mark you as a "deadbeat", and therefore, if you have any particular services you need from them, or the occasional late fees dropped, they will not give it to you. But if you're in a financial situation where that's not an issue, then screw them! Be a credit deadbeat! I am one too, and proud of it!

[Ima saver]

I agree, pay off your credit card. Then if you do make small charges on it from time to time, pay the balance off in full each month. That should raise your credit score.

[sofocused978]

I agree with the others. Pay off the CC, leave yourself a comfortable emergency fund and start hammering at the car payment.