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what should I pay? car loan or credit cards?

I just got $10K bonus, should I pay my car loan: balance is $10K at 9.25% or my credit cards at $8,000 balance at 14% revolving account? which way would I save more money in the long run?

17 Comments

  1. misty byerly says:

    Car loan. Just ask what the pay off is then you wont have to pay all that interest. Credit cards can wait!

  2. Serena M says:

    Pay off the credit cards…and use the scissors on them.

  3. Carl V says:

    half car ,half credit cards

  4. seek_fulfill says:

    Credit cards of course. Try not to exceed the credit card limit after you have paid off the balance from your bonus so that you avoid paying interest.

  5. TIMOTHY D L says:

    Get rid of those credit cards! Then put them in a plastic container full of water, and freeze them in your freezer. Next time you are tempted to use them, it will take some work to get them out of the ice!

    After you pay the cards off, put the two grand in the back for those things you might have needed to charge up until now!

  6. MELISSA B says:

    You would save more if you pay off the credit card debt first since the interest rate is higher. This will only work though if you don’t go out and charge on them after paying them off. As long as you feel you can do that, pay the $8000 on the cards, and put the remaining $2000 on your car loan. You should then take the money that you normally pay towards the credit cards and add that to you monthly car payment. (example if you were paying $200 a month for credit cards, and your car payment is $300, start paying $500 towards the car payment) This extra money will be applied directly towards the principle of the the car loan, making the interest lower and paying off the car is almost half the time.

  7. Judy says:

    If you’re just going to run the credit cards back up again, you’d still be paying that interest, so would be better off paying off your car loan.

    If you’re going to cut back on the use of credit cards if you pay them off, only charging what you can pay off at the end of the month so you don’t pay interest, then paying off the credit cards is your best option financially.

    Remember that the $10,000 bonus won’t be $10,000 by the time taxes are paid on it.

  8. lenej00 says:

    I agree half & half..

  9. Kathy W says:

    Congrats on your bonus. Pay the higher interest item.

  10. K C says:

    Pay off the cards. Then cut them up.

  11. Caper says:

    Because your credit card interest rate is higher (and yikes, why do you have a card with that high an interest rate?) the simple answer is to pay that off first. However, that also comes with a catch, if by paying that off you see yourself with a big line of credit to draw on, and keep charging things on it, you’ll just blow your money and end up in the same boat you are in right now. Here’s a plan, first, shop around for a credit card with a lower rate, there are plenty out there. Then transfer your 8,000 balance to that card. If you can resolve not to charge more on this card, then comparing the interest rates is a way to determine which should be paid off first. You really should not be carrying a balance that high on your credit card. Get it down to where you can pay it off EVERY month. This is so simple, yet so many people have trouble with it; don’t spend more each month than you can pay off. Truly, it works.

  12. cookiesmom says:

    pay off whichever one costs more money each month and then take that money and pay it towards what is left to bring it to zero balance…i does no good to pay off the credit cards if you are going to continue to use them at this balance…i know thats what its there for…but – once you have the balance in check and your auto has been paid off there should be no reason to use credit cards because you will have the money on hand in the bank to spend…i have always used credit cards as a last resort only when i have no cash or $ in the bank to spend

  13. Jaye says:

    Pay off your credit cards. This will help your credit score which is used for all sorts of things. Did you know that your credit score is used when rating your auto insurance? Better credit can equal lower insurance rates. Just make sure after you pay off your credit cards you do run up a large balance on them again. Pay off you credit cards in full every month!

    Pay $8,000 on your credit cards, $1,000 on your car loan and use the $1,000 balance to have some fun!

  14. wrkey says:

    Here’s my suggestion….

    1. First validate that your CC balances are not subject to a special rate such as ‘6 month day no interest’. If so.. it may make more $$ sense to wait to pay that portion of the balances.
    2. It would seem obvious to pay off the loan with the big monthly payment first (ie. the car note), however this will not save the most in the long term.
    3. Pay off all CC balances that 1)do not have an ‘interest free period’ and 2)have a greater interest rate than the car note (ie. >9.25%).
    4. Once you have paid off these balances, you now have a set amount to use to ‘pay down’ the car loan. Be aware that if you pay a larger amount on the car loan you will not reduce the monthly payment amount… only the date of the final payment. You now have two choices on how to reduce the amount. The best option is to take your title (with lien information) to your bank and ‘refinance’ the car loan at a lower interest rate and use the remaining cash from the bonus to reduce the financed amount. This is the most effecient way which will save the most in interest charges and reduce your monthly payment as well. If you can’t get a better interest rate, I suggest you put the remaining cash in a savings account and then spread that out through the remaining term on your car loan. For example, let’s say you have 2,000 cash left and you have 3 years left to pay on your car note. Put the $2,000 in the savings account. At each car payment date, move $55 (2,000 / 36) from your savings to your checking. You have thus reduced your monthly payments by $55 while receiving some interest payment on the savings account.

    Good luck and I hope this helps!

  15. trigam41 says:

    The credit cards, because the interest is higher. Always pay off the higher interest debt first.

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  17. SAL says:

    I think the answer is obvious – pay off your credit cards first so long as you don’t intend to run up another balance, since the interest rate is higher. Then put the remaining amount to your car loan (9.25 percent is high for a car loan – we just got one for 5.75 percent). The money you save from not paying interest is money in the bank.

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