What debt should I pay off first?

bodine1231 · ‎05-21-2015

Hi,I just received a bonus from work of $2k and want to use it to pay down one of my debts. I'm not sure what order I should go in. Any help would be greatly appreciated!!!

Credit Card - owe $2k,24.9% apr, $50min payment per month

Auto Loan - owe $1600,5 payments left of $280 and I plan to go down to liability after its payed which is another $100 saved per month.

Credit Card 2 - owe $4600,23% apr, $181 per month (I adjusted my minimum auto payment so it'll pay off in 3 years)

Anonymous · ‎05-21-2015

@bodine1231 wrote:
Hi,I just received a bonus from work of $2k and want to use it to pay down one of my debts. I'm not sure what order I should go in. Any help would be greatly appreciated!!!

Credit Card - owe $2k,24.9% apr, $50min payment per month
Auto Loan - owe $1600,5 payments left of $280 and I plan to go down to liability after its payed which is another $100 saved per month.
Credit Card 2 - owe $4600,23% apr, $181 per month (I adjusted my minimum auto payment so it'll pay off in 3 years)

I would pay off the 2k card. Ideally you want one card reporting a balance for score boost. Best if that card is under 10% of the credit line. Also, the 2k card is your highest interest rate.

Paying the card reduces your minimum payments you owe each month. You can then take the 50 you would pay on it and put it on the 4600 card. That's what I would do.

Anonymous · ‎05-21-2015

I am riding with swampthing. Gets you down to 1 card with a balance which helps the score and you can hopefully toss the extra 50 at the other card to get that balance down.

bodine1231 · ‎05-21-2015

Gotcha,thanks. My credit score is already ok (698) but I hear you about only having one card. I just though that getting the car paid off would free 400 a month but I guess it doesnt benifit me becuase I'm not paying interest on it at this point.

takeshi74 · ‎05-22-2015

Revolving utilization has more of a scoring and risk impact than the balance on your auto loan. You'll probably see a bit of a drop from paying off the auto loan.

What's the utilization like on the cards? If the $4,200 card is high I'd suggest getting it down. Revolving utilization also has more impact than number of balances.

Anonymous · ‎05-22-2015

If you are not worried about immediate score improval and just trying to pay off debt then paying off the car and dropping the insurance down then focussing those freed up funds to pay off the cards would save you the most money. I would look at dropping the insurance down, if something was to happen you could be into a large auto loan with no trade in and another long term loan. However $100 a month drop for full coverage is a pretty good chunk to pay, so it may be worth it.

Anonymous · ‎05-22-2015

@bodine1231 wrote:
Hi,I just received a bonus from work of $2k and want to use it to pay down one of my debts. I'm not sure what order I should go in. Any help would be greatly appreciated!!!

Credit Card - owe $2k,24.9% apr, $50min payment per month
Auto Loan - owe $1600,5 payments left of $280 and I plan to go down to liability after its payed which is another $100 saved per month.
Credit Card 2 - owe $4600,23% apr, $181 per month (I adjusted my minimum auto payment so it'll pay off in 3 years)

I agree with the advice given so far.

- pay off 24.9% card

- use the $50 from paid off card to pay $231 towards 23% card

- once you pay off the auto loan, use the $280 payment to pay $511 towards 23% card

- once you pay off 23% card, use $511 towards building your emergency fund (about 6 months of your monthly expenses). That way if you need something unexpected you don't have to put it on a card and pay over 23% interest per year. And get in the habit of using your cards only for things you actually have the cash to pay for. PIF your credit cards. Do not pay any interest. Save between 10-20% of your monthly income (Roth IRAs are a good vehicle). Finally, create a budget and stick to it if you want to achieve your financial independence.