Which bill would you pay off first?

**LuxLiving** · 09-12-2006, 06:22 AM

Re: Which bill would you pay off first?

So you still owe 15,314.40 on the car loan and 24,120.00 on the HELOC? Are there prepayment clauses on either of them?

Based on what you've said I'd probably pay on the car first and get that loan for a depreciating asset (always a bad idea) off of my balance sheet ASAP, especially if you plan on staying in your home for awhile. This is just my opinion and others here with wiser heads may have another opinion...which I'd be just as interested as you in hearing!

Curious - what did the HELOC loan take care of?

**sweeps** · 09-12-2006, 06:32 AM

Re: Which bill would you pay off first?

The car loan. The home equity loan is likely tax-deductible whereas the car loan is not. If it is not tax-deductible, go for the loan with the smallest balance (ONLY BECAUSE the interest rates are the same -- normally you ALWAYS go after the highest effective interest rate).

I disagree with the depreciating asset line of reasoning. A loan is a loan. If you have a car loan at say 3% and a mortgage at say 7%, you should be putting all your effort toward the mortgage before the car loan.

**frugalmomof1** · 09-12-2006, 06:38 AM

Re: Which bill would you pay off first?

We used the home equity loan to replace very old windows and doors and part of a kitchen remodel. We paid as much as we could in cash for the kitchen.

Neither loan has prepayment clauses.

**creditcardfree** · 09-12-2006, 07:50 AM

Re: Which bill would you pay off first?

I'd also pay off the car first as well. I love a paid for car. It's very liberating!

**Ima saver** · 09-12-2006, 08:43 AM

Re: Which bill would you pay off first?

I would pay off the car first also, then take that car payment and put it toward the house mortgage heloc.

**puppypal** · 09-12-2006, 09:56 AM

Re: Which bill would you pay off first?

I agree. When my hubby and I were first married we both came with a credit card debt. Since I am the tightwad and he tends to spend spend spend! LOL! I had a lower debt on my card and truck note than he did. His truck note and mine were the same amount but his had more months on it!
I paid off the lowest one first. The next month I paid what I normally would to card #2 plus the amount I was sending to card #1 til it was paid off. Then NOW THIS TAKES DISAPPLINE!
I took the #1 amount and the #2 amount and what I was paying on the shortest payment truck note and paid it off. Before long it was too, paid off and I managed to pay the last one in two years instead of four. For the longest of the struggle months I felt I was getting no where because there wasn't extra in the checkbook. But then after blood sweat and tears, I made that last truck note and poof! I felt rich!

**LuxLiving** · 09-12-2006, 10:50 AM

Re: Which bill would you pay off first?

Well normally Sweepsplayer I'd agree a loan is a loan...but her car loan is for four years. Now this is different for everyone but lots of folks can wear out a good new car in 4 years time (which is her remaining time). I'd hate to be paying on a car that was already worn out because I threw money at my house. With the car maybe she'll be able to sell it for a little cash when she goes to buy another one.

If it is less likely that she'll be moving in 4 years then I'd still say the car...because she's got 15 years left on the HELOC. AND as pointed out the interest on the HELOC is deductible. Once she got the car paid off, I'd split the old car payment in half and pay half of that on the HELOC and put the other half back to buying my next car with cash.

That's my reasoning (it maybe faulty) ...but wouldn't she be better off if she put any of these theories to the calculator test w/some actual figures and projections??

**sweeps** · 09-12-2006, 12:00 PM

Re: Which bill would you pay off first?

Lux, someone may kick themselves if they're still paying on a heavily depreciated car. But why hurt yourself even more by paying on a lower-interest loan just because you're angry about what the loan was originally for.

Extreme example: You have a 1% car loan on a car that's been completely junked -- you can't drive it anymore. Meanwhile you have 10% mortgage on a house that may or may not be appreciating. By putting extra money toward the car loan, you are wasting your money. You've made a bad situation even worse by missing out an opportunity of getting a much better return by paying toward your mortgage. In fact you'd be better off saving the money in a high-yield savings account than paying down the car loan.

Similarly whether you're moving or not should have no bearing on whether you pay toward a mortgage or HELOC or not. If you pay more toward the mortgage and then move, well then you have more equity. An exception here may be if there are limitations on refinancing or acquiring another mortgage, but that's another matter.

**LuxLiving** · 09-12-2006, 12:09 PM

Re: Which bill would you pay off first?

But her interest is the same. And the 319 a month has to be paid whether or not she puts any extra anywhere. For me the 319 would put me in a tight in other places, ie not saving. So I'd go for the shorter term to free up the 319 a month sooner to then go on the HELOC.

No I wouldn't throw it at the car just because I was mad. I understand about the equity buildup. If the rates were different like in your example sweepsplayer - yeah I'd say the mortgage too.

But in her instance she isn't going to be better off putting the money in savings...UNLESS the rates she is paying on these suckers is extremely LOW! (I know you know that Sweepsplayer, I'm not sure about frugalmomof1 yet as I'm just getting acquainted.

)

**sweeps** · 09-12-2006, 12:14 PM

Re: Which bill would you pay off first?

Ok, then I think we're in agreement. The interest rates (the effective interest rates, to be precise) are the determining factor. After that, go for the loan with the smaller balance.

**frugalmomof1** · 09-14-2006, 11:05 AM

Re: Which bill would you pay off first?

Thank you everyone for your input. My instinct was to put it toward the car first, but I wanted some concrete reasons for doing it that way.

I am trying to refinance the car to get a lower interest rate . Has anyone ever had a loan thru lending tree? The local banks around here are all offering rates about the same as what I have right now...I was wondering if I could get a better rate going thru an online company.

**greedy4chips** · 09-14-2006, 08:02 PM

Re: Which bill would you pay off first?

Originally posted by frugalmomof1

I am trying to refinance the car to get a lower interest rate . Has anyone ever had a loan thru lending tree?

What rate % are you looking for? Several years ago I used PeopleFirst (online and gone now) and Eloan to refinance our vehicle loans to reduce our payments and interest rate.

I get paid by Eloan when people use my link to apply for any type loans they offer. I wish Jeffrey had a section of these links so people here could use them and perhaps get a portion of those earnings.

I would pay off the car loan first. But if you want to argue logistics about which should be first here is my opinion. An extra $1 paid on your HELOC would save you much more in interest over the life of the loan and therefore put you further ahead in the long run. There is however outside factors in your decision and you will get 100 different reasons why to pay one off first.

**LuxLiving** · 09-15-2006, 05:21 AM

Re: Which bill would you pay off first?

Yes frugalmomof1, do you feel at liberty to post the interest rate you are paying now on these two loans?

**frugalmomof1** · 09-16-2006, 06:17 AM

Re: Which bill would you pay off first?

The interest rate for the car loan is 7.5% and the interest for the HEL is 7.25%. DH and I both have credit scores in the 800's and we were assured that these were the best rates at the time.

Which bill would you pay off first?