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Posted in Paying Your Bills
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Question By
kreditkyle

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Best to pay off credit card or auto loan first?
I'm receiving a $2k bonus and want to put it towards paying off debt and would like help deciding exactly which debt. I have the following:

2 x low amount ($1500 total), low interest credit cards
1 x mid amount ($1,000), low interest credit card
1 x high amount (under $2,000) high interest credit card
1 x auto loan ($2,500 balance or $150 month) + required full coverage insurance ($200 month)

I'd like to pay off my auto loan first, which would sequently lower my insurance as I won't need full coverage and can put the $200 saved per month towards credit cards. But it might also be more beneficial to pay off credit cards first.

Any advice is appreciated, thank you!

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Top Contributor
269 Contributions
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What would the difference be between the full coverage insurance and the insurance you plan to get once the loan is paid off? If the difference monthly is higher than the interest payments on your high-interest credit card (and I'm betting it is), you should pay that off first. Just be aware that when you pay off an auto loan your credit score will drop a few points. 
I like your plan, to use the savings from paying off one thing to go towards paying off something else. With the savings from not having to make a car payment and buy overpriced insurance, you should be able to pay your credit card balances down quickly and the points you lost from paying off the loan will come right back. Smart. 

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