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Hi folks! Need a gut/math check here -
Moving back home (rent free, woot!) for a year to pay down some debt and hopefully, save up to buy house next spring/summer. I've crunched the numbers, and it looks like after saving what I need for a reasonable downpayment, I can devote another $10,000 to paying down debt.
Right now I've got:
Student loan, $314/month
$10k car loan, 4%, $222/month, 45 months to go
$17k personal loan, 9%, $548/month for 36 months (just consolidated cc debt with this one)
My plan, before the opporunity to move home came up, was to pay down the personal loan as aggressively as possible because of the rate. But now that my plans have changed, would it make more sense to pay off the car first?
If I pay $10k toward the loan, the min payment will still be $550 until its paid off. But if I pay off the car completely, that frees up $222/month. I understand that mortgage lenders are looking at what I'm on the hook for each month, so it seems like paying the car off would make more sense here.
Is that the case? Am I missing anything?
Pay off the personal loan!
Yes, it's true that paying off a loan completely will help your DTI... but have you done the math on where those loan balances will be in a year?
I'm assuming here that the $10k for paying down debt over the course of the next year is in addition to budgeting for the normal monthly payments on all three loans.
Making no more than the normal monthly payments on the personal loan over the next 12 months will leave only $11,833 left to pay there - within close reach of your planned $10k payoff. And if instead of waiting a year, if you apply that $10k in even chunks monthly, starting this month (about $830/month), then the personal loan will be paid off completely in a year!
...which means that not only will you be saving on the 9% APR vs the other loans, but you'll also have improved your DTI by $548/month, rather than the $222/month of the car loan.
I would recommend Paying down the Loan. Depending on your scores, you might also want to look into getting a discover or AMEX balance transfer card (or using an existing one if possible, as new credit could be an issue for mortgage but If your not applying for atleast 6 months, should be ok).
You will save money as 0-3% interest is lower than 9%. and your monthly obligation will be the minimum payment, so 200ish vs 548. This number will then further decrease as you continue paying down the balance.
@persica9 wrote:Hi folks! Need a gut/math check here -
Moving back home (rent free, woot!) for a year to pay down some debt and hopefully, save up to buy house next spring/summer. I've crunched the numbers, and it looks like after saving what I need for a reasonable downpayment, I can devote another $10,000 to paying down debt.
Right now I've got:
Student loan, $314/month
$10k car loan, 4%, $222/month, 45 months to go
$17k personal loan, 9%, $548/month for 36 months (just consolidated cc debt with this one)
My plan, before the opporunity to move home came up, was to pay down the personal loan as aggressively as possible because of the rate. But now that my plans have changed, would it make more sense to pay off the car first?
If I pay $10k toward the loan, the min payment will still be $550 until its paid off. But if I pay off the car completely, that frees up $222/month. I understand that mortgage lenders are looking at what I'm on the hook for each month, so it seems like paying the car off would make more sense here.
Is that the case? Am I missing anything?
I still think you should work as aggressively as possible on paying off the personal loan.