Which loan/debt should I pay off first?

[Matt Vivlamore]

I've been making a break through recently and paying off a lot of debt. Back in 2011, when I started the separation/divorce process I was over $100+k in debt and thats not including my student loan or the mortgage. Today I am left with 2 loans & 1 credit card. In the last month I paid off the Van and this past week refinanced the old Personal loan which had $5k left @ 12.7% and combined it with $8k form a Citi CC.
While I've paid off $70k in the 3 years, the Sound Business has grown as well (in 2011, I had $45k worth of gear, today I have $70k with of gear at MSRP).

In the past I was paying off all the small debt. But, now I have 3 that are pretty close to each other. Which loan/debt would be the smartest to to start throwing excessive money into one of the debts to pay it off quickly.

Also, I'm not interested in doing the credit card balance transfer; I don't want to open up anymore credit cards, I've been letting the banks close/lock the cards. After its paid off, I'll keep it around and use it for gas once a month instead of my debt/check card.

 

[John Roberts]

Re: Which loan/debt should I pay off first?

The math clearly suggests you knock down the 10% debt first. All else equal.

You can not earn 10% interest on CDs or savings accounts these days.. You can't even earn 4%, making 10% on cash is good.

I know with some debt instruments there can be pre-payment penalties (they want their interest), but CC and non-installment type debt usually don't.

JR

 

[Max Warasila]

Re: Which loan/debt should I pay off first?

Even without looking at the math, the CC is your best bet. The bank expects your loan to make them money per your contract, and the car loan is also long term. The credit card is the most painful and evil debt on your list, and perhaps some of the most evil debt out there period. I'm simplifying, sure - but I personally refuse to use a credit card to pay for anything that I can't pay off at the end of the month. Just too expensive.

 

[Ben Lawrence]

Re: Which loan/debt should I pay off first?

A 4% interest rate! That is crazy. I used to get 4% interest on my savings account.
I would weigh in on your poll but my money managing skills are inferior to most.

 

[Matt Vivlamore]

Re: Which loan/debt should I pay off first?

A 4% interest rate! That is crazy. I used to get 4% interest on my savings account.
I would weigh in on your poll but my money managing skills are inferior to most.

I'm member of Navy Federal Credit Union; my dad is Retired Navy. I have a USAA Savings account as well that I use to hide money from myself.

NFCU has some of the best car rates... On a new/certified used car the rates are low as 1.5% for 36 month or 2% up to 74 months. Used cars are 2.6% for 36m and 3% for 60m. When I worked at the dealership the interest rates on most customers where 9%-20% on a new/used car.

 

[David Morison]

Re: Which loan/debt should I pay off first?

Am not a financial expert by any means, but getting rid of the highest interest rate first seems to make most sense on an intuitive level.
Always assuming there are no early repayment fees or other hidden costs to that of course.

 

[TJ Cornish]

Re: Which loan/debt should I pay off first?

As others have said, getting rid of highest interest rate first is a good idea.

The only reason I would possibly make a different choice is if you had one loan significantly smaller than the rest - getting rid of that one first frees up some cash for the rest of the debts, and gets rid of one thing hanging over your head. It may not be the cheapest way to do it, but may be a psychological benefit. This doesn't seem to be your situation, as your debts are all similar in size.

 

[andrew gissing]

Re: Which loan/debt should I pay off first?

I second this post. For people struggling with lots of debts the psychology of paying them out gives encouragement to continue and keep paying off rather than give up 'cause it's all too hard.

But OP's post seems like he's got it together with a lot of it already paid off. Go the highest.

 

[Tom Roche]

Re: Which loan/debt should I pay off first?

As others have said, getting rid of highest interest rate first is a good idea.

The only reason I would possibly make a different choice is if you had one loan significantly smaller than the rest - getting rid of that one first frees up some cash for the rest of the debts, and gets rid of one thing hanging over your head. It may not be the cheapest way to do it, but may be a psychological benefit. This doesn't seem to be your situation, as your debts are all similar in size.

I agree with TJ. I used to think it best to tackle the debt with the highest interest rate first no matter the balances. Paying off the smallest loan first, however, provides a sense of accomplishment and allows you to quickly add more $$ to the next lowest debt and knock it out. It's called the debt snowball method. Since you have two debts with balances nearly the same, I recommend tackling the debt with the higher interest rate first.

And let me just say congrats on your progress. That's quite the accomplishment! Being in a similar situation with a divorce, I paid off my credit card debt (lawyer fees) less than six months ago and just paid off my car last week. I only have a small mortgage left, though it competes for the $1 million in alimony I must pay over the next 24 years.