Pay off one loan or pay ahead on 4 loans?

[CleanCredit]

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@Tazman81 wrote:

Where did this $12,000 come from?  Based on your post, it sounds like you have been saving this money for a while.  If this is your emergency fund, then no, do not pay off anything until you get a different amount of money saved.

If this is your emergency fund and you are comfortable with that amount, you can start putting the money you would have been saving toward one of your loans to pay it down further.

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I've been saving for about a year.  This is not my emergency fund.  This is a combination of a tax return and additional savings I've been able to put aside. I have $6k in my emergency fund.

[Anonymous]

I would KO the lowest student loan and then the Motorcycle. Take those payments and roll those into the payments for the other two loans which will keep your monthly payments the same but allow you pay those off a bit faster.  Not sure what your end goal is but that's what i would recommend. 

[Tazman81]

Excellent.  I figured so, but wanted to ask to be sure.

So, which is most important to you right now?

1.  Keep your FICO score from lowering (i.e. you are shopping for credit in the next 6 months)

2.  Reducing your Monthly expenses

3.  Reducing the overall interest that you pay on your outstanding debts?

Option 1:

If the bank allows "pay ahead", not all do, then go ahead and pay down the balances on multiple loans and keep them open.  Still continue to make your monthly payments as you can to continue to pay it even further ahead.  If the banks don't offer this, then scratch this option as it wont be beneficial.

Option 2:

Pay off the Car Loan as it would give you the most money back each month.  Then take that money you would have been paying towards your savings monthly and your car loan monthly, and add it to the loan that has the smallest balance.  This will get that loan paid off in a few months giving you even more free money each month.  Continue to snowball this until you are debt free.

Option 3:

Pay the money toward the loan with the highest interest rate.  This will make sure you pay out the least amount of money in interest in the long run.

[CleanCredit]

Thanks for the response, Taz.  I think I'm going to go with Option 1.  I've verified that all my loans, except the $8K student loan, will allow me to "pay ahead" and push the due date of the payment back.

With that said, rather than placing an equal share to all 4 loans, I will now only do it to the 3 loans that allow me to pay ahead.   I think this will give me the best scenario for my goals right now.

Again, thanks to all for the feedback!

[Blackswizz750]

This is also good advice and something I didnt know you can do other than pay down principal on a mortgage. I will keep this mind with my auto loan.

[Tazman81]

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@Blackswizz750 wrote:

This is also good advice and something I didnt know you can do other than pay down principal on a mortgage. I will keep this mind with my auto loan.

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Just remember, this may not be an option at all banks, so be sure to validate with your bank ahead of time.

[Anonymous]

Are you planning to apply for another loan or product sometime soon? If not, caring about your credit score might not mean as much as the money you save from interest over the long run. If you're at a 712, you have a car that's paid off, and you're not looking for a personal loan sometime soon, you probably won't need a higher score than what you've got. (For instance, most mortgages I've come across don't seem to care much as long as you're above a 640 (FHA) or 660 (Conv). I'm not a mortgage expert, though. Limited experience with them.) You won't go down much for paying things off, and you'll keep more $ in your pocket.

If it were me, I'd probably pay off the car, use the money I had been paying on that to pay down the motorcycle (in about 8-9 months, it seems), then use that to pay down the smaller student loan quickly.

Regardless of what you decide, congrats on storing up so much for yourself along the way! You must have some good habits created already, which is probably the biggest part of beating debt.

[CleanCredit]

No plans to apply for any credit anytime soon. My scores are in the 750-770 range right now and I'm not really concerned if they were to lower or raise at this point, as I don't have any intention on using them in the near term.

I think I will stick with my original plan and pay them down equally for now.  Thanks again to all.  Such great advice and information!

In terms of saving - I'm in a rotation program for work and I was sent on an expat assignment.  During that assignment I essentially lived rent free, so I continued to act as if I had rent to pay and shoved that into my savings.  It worked out nicely!

Have a great weekend!

[Chris679]

Excellent plan OP I think many people can benefit from paying down installment loans and viewing that as part of the emergency fund. I never make a down payment for this reason. I like to let the loan go the full term though for max credit scoring. Can pay down to almost nothing and with my CU I can auto pay $1 per week.