CC payoff question

[BPASWA]

Okay my dilemma is this. The wife & I have a CC with a balance of $4500 @ 6%. A car note with $1200 @ 5.99% left on it. We have a good amount in Savings. Where going to be in the market for a new home. Also let me add that we don't have kids. The wife is on me, about paying the CC off. I have mixed emotions on this. That's why I'm seeking a little guidance. With the way the economy is today. I'm a little gun shy on pulling the trigger on taking that much out of savings. Especially knowing that we need a good percentage for a down payment. I was thinking that we should pay off the small balance on the car, and Get rid of that debt. And the money that I was paying on the car. Pay on the CC. and still continue to establish good credit. Now I know some may say that by paying off the CC could possible land us a better mortgage rate. Our credit scores are both in the low 800. If I can get some evidence to support my claim that would be great. If the majority of you say PAY IT OFF. Then I guess that is what I will have to do, and the wife will be right again!! LOL

[disneysteve]

What is the rate on the car loan? If it is higher than the CC, pay it off. If it is lower than the CC, pay the CC off.

The bigger question I'd have is if you are financially ready to buy a house. From what you've said, it sounds like you aren't. I don't think you should buy until BOTH the CC and car are paid off, you have a 20% down payment AND at least a 3-month emergency fund.

[JoshuaHeckathorn]

Once again, I agree with Steve. If the interest rate is higher on the CC, then that's a no-brainer in my book- pay it off first. My guess is that it is higher than the auto loan.

Remember, carrying a balance on your credit card doesn't help you build credit any faster either. It's always best to pay your monthly credit card bill in full and never carry a balance from month to month. Your FICO scores will continue to love you for it too.

[Slug]

Steve is right. Also Discover is offering no transfer fees and 0% for 12 months so you could transfer the balance to delay the payment. Mild impact to credit score when you open the new account though.

[BPASWA]

Steve the auto loan is @ 5.99%..it's a wash. Where definitely close to 20% for the down payment based on the price range where looking at. Now we would be tapping into the 20% to pay the CC off. I will definitely consider taking your advice. Thanks again

[bjl584]

Steve the auto loan is @ 5.99%..it's a wash. Where definitely close to 20% for the down payment based on the price range where looking at. Now we would be tapping into the 20% to pay the CC off. I will definitely consider taking your advice. Thanks again

Assuming that you would pull money out of savings to pay off both the car and the CC, how long would it take you to build your savings back up? $5700 correct?

Having that debt or not having that debt probably won't effect your ability to obtain financing, but clearing it will be peace of mind, and it will be a big help not making those payments when you'll be needing money for things for the house that you'll eventually be buying.

i would suggest paying off both debts, building your savings back up, then buying the house.

[BPASWA]

What is the rate on the car loan? If it is higher than the CC, pay it off. If it is lower than the CC, pay the CC off.

The bigger question I'd have is if you are financially ready to buy a house. From what you've said, it sounds like you aren't. I don't think you should buy until BOTH the CC and car are paid off, you have a 20% down payment AND at least a 3-month emergency fund.

Steve after reading some of your posts about up keep on your home. You might be right about being ready for a house. I tell the wife all the time we should just rent and travel the world.

[disneysteve]

Steve the auto loan is @ 5.99%..it's a wash. Where definitely close to 20% for the down payment based on the price range where looking at. Now we would be tapping into the 20% to pay the CC off. I will definitely consider taking your advice. Thanks again

Then pay off the CC, pay off the car and keep saving until you have the 20% and the emergency fund in place. Then buy the house.

[littleroc02us]

I have mixed emotions on this. That's why I'm seeking a little guidance. With the way the economy is today. I'm a little gun shy on pulling the trigger on taking that much out of savings. Especially knowing that we need a good percentage for a down payment. I was thinking that we should pay off the small balance on the car, and Get rid of that debt. And the money that I was paying on the car. Pay on the CC. LOL

What I don't understand about this post is that your worried about the economy if you use cash to pay off the car and cc, but not on paying a huge montly mortgage payment. Seems backwards to me? My advice is to pay off all debt, save 20% down and have an emergency fund of 6-8 months for your fears. Hope that helps?

[cjscully]

Steve after reading some of your posts about up keep on your home. You might be right about being ready for a house. I tell the wife all the time we should just rent and travel the world.

Upkeep is probably the biggest "gotcha" there is when it comes to home ownership. This is why the emergency fund is so important. There are lots of things that can happen to a house that aren't covered by a standard homeowners insurance policy. For example, here in CA earthquakes are not covered. You have to buy a separate policy for earthquake coverage. That's one of the things an EF is for.

[Mithrin]

If you have to dip into the 20% downpayment savings to pay off your CC debt, then you don't really have 20% saved for a house yet. In effect, you can put 20% down, provided that you charge 4.5K of it onto your credit card.

Since you have the cash, pay off the CC debt, and work on building your savings back up. Not only do you save more in interest than you were earning on that 4.5K, but you also stop paying interest on new purchases (you get the grace period back).

Another thing to consider is that while you currently have a 6% rate on your CC, which is a great rate for a CC, it's not a fixed loan like a car loan or mortgage. Imagine that you left the CC debt and bought a house, using up your cash. Then the credit card decides to change your rate to 15% (perhaps citing a change in your debt to income ratio because of the mortgage). You'd be stuck with a high interest debt that would be much harder to deal with than it is now. If anything, pay off the CC now, and leave the car loan to be paid off on schedule. Looks like it doesn't have much time left anyway, and there is no risk of the interest rate changing for no reason.

[BPASWA]

If you have to dip into the 20% downpayment savings to pay off your CC debt, then you don't really have 20% saved for a house yet. In effect, you can put 20% down, provided that you charge 4.5K of it onto your credit card.

Since you have the cash, pay off the CC debt, and work on building your savings back up. Not only do you save more in interest than you were earning on that 4.5K, but you also stop paying interest on new purchases (you get the grace period back).

Another thing to consider is that while you currently have a 6% rate on your CC, which is a great rate for a CC, it's not a fixed loan like a car loan or mortgage. Imagine that you left the CC debt and bought a house, using up your cash. Then the credit card decides to change your rate to 15% (perhaps citing a change in your debt to income ratio because of the mortgage). You'd be stuck with a high interest debt that would be much harder to deal with than it is now. If anything, pay off the CC now, and leave the car loan to be paid off on schedule. Looks like it doesn't have much time left anyway, and there is no risk of the interest rate changing for no reason.

Thanks for the advice on the payoff of the CC. All you guys have great points. That's why I always look to this site for advice. Thanks again

[greenskeeper]

The CC has the larger balance (same rate) so pay it off before the car, sounds like the car loan is just about at the end (only $1200) so the principal/interest per payment is in your favor.