I’d pick the one with the lowest balance and work on it, regardless of whether its a car or a credit card.
I’m not sure I understand her thinking either. The car payments and the credit card debt are the same thing. They’re both debt payments, and you’re being charged interest on both of them. The only difference is that one is attached to a car and one’s not.
Car loan at 2% interest and credit card at 12%. Plus, if I pay off the card and it gives me $15,000 of available credit, if I lose my job and have no savings yet (because I’m paying off all that debt) I can “live off it” for a bit. If I pay off the car loan and lose my job, leaving a hefty balance on the card, I’m outa luck.
It’s one reason life insurance is better than mortgage insurance. Which would you rather have if your spouse dies: The $200,000 remaining balance paid off on your house, or the house payment to continue, but $200,000 in the bank?
Dave must be losing his fastball.
Credit card debt carries 14% or more interest rate. Credit card debt is pure poison.
Car debt, even on a crappy loan rate is usually about 9%. Last car I bought, it was 3%, (on a used car).
If your job is secure then get rid of the higher interest debt first. Usually that will be the credit card debt. If your job is iffy then get rid of your secured debt first. Defaulting on a car loan will cost you the car. Defaulting on a credit card will cost you some nasty phone calls and some bad credit but little else.
I’m not sure I understand her thinking either. The car payments and the credit card debt are the same thing. They’re both debt payments, and you’re being charged interest on both of them. The only difference is that one is attached to a car and one’s not.
But wait! There’s more! If you pay off your credit card first, all that available credit improves your credit score, enabling a lower interest rate on future loans. Paying off the car affects your available credit not one whit.
Credit cards are usually 10% or more interest, new car loans can be interest free and up, with 2.9% being common.
I just pay cash for the things I need (except the house).. is my car new? nope. But it looks good and is reliable. That is all I care about.
Do I have the latest and greatest? Nope. But very few people need to be on the bleeding edge of technology.
I have a house payment. I make payments 4 times the amount it is suppose to be.
a year ago I didn’t know how I was going to make the rent on a mobile home.
Wow how things change.
Dave screwed up on that one.
I humbly disagree.
Your car note is typically a fixed rate with fixed terms.
Under current law a credit card issuing bank can screw with you sixteen ways from Sunday, changing your rate, terms, and credit limits on basically a whim.
And if that keeps up I fear we are going to be electing a whole lot more Fake White Indians in the future. Given a choice I’d definitely want to get out from under the credit cards first.
Buy a car you can afford outright.
Expunge credit card debt with Chapter 7 - James Madison knew what he was doing when he added bankruptcy provision into the Constitution. And once that's done, never keep a credit card again.
If every American lived this way we'd be a much happier and more productive society.
When our situation improved and we were able to start paying down our debt, I focused first on the high interest debt. The credit cards had about three times the interest rate of the car payment. The mortgage was the lowest interest of all our debts. My husband was smart enough not to assume I had cute little sentimental reasons. We discussed it like two adults.
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