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Posted in Auto Loans
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Question By
Marie1333

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Should I pay off my car loan or card first?
They both have the same balance of 4300. My loan is cheaper on interest but I pay 500 month ( I cannot change it back to the lower payment it was). So should I pay more on car loan or pay off my credit card first?

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Pay the credit card first

Helpful to 23 out of 23 people

I'm guessing that the credit card interest is higher than the auto loan, as is typical.  So paying the card off first will save you money. Secondly it will also increase your score as your utilization percentage will go down.  Utilization percentage ( equal to the amount you owe on your credit cards divided by your total credit limit) is a HIGH weight factor in determining your credit score.

Thirdly, paying a car off closes the account, and does not help your utilization.  This forum is rife with stories about how people's score actually dropped after paying an auto loan off.  It makes no sense, but it is the way they do it.

Finally, once you pay on your auto, you can't get it back.  If you have an emergency and need to spend money unexpectedly, the cash you apply to your auto loan is unavailable to you.  At least if you pay the credit card first, you will benefit from increasing your available credit.  This will give you some options and flexibility in a crisis.  You could charge more to the card, or even cash advance if you really get in a bind.

All these factor point toward paying the credit card off first.

HTH

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Helpful to 6 out of 7 people

I see it as paying off the car freeing up $500 a month instantly. Unless you have 50,000 in credit card debt, the $500/month increase will beat out any interest on your cards. And you can now apply most if not all of the $500 toward the credit card debt, paying it off rapidly

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Check debt repayment calculator

Helpful to 4 out of 6 people

The debt repayment calculator (look to the left on this page under Financial Tools) may help you decide for yourself which one will get paid off first.  Either way, when one is paid in full, take what you were paying on that item and add it to the payment on the other and you'll have them both paid off in no time.

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CC vs Auto Payoff reply

I am in the same boat. I can pay of CC in full or Auto in full. Truthfully, I should pay off my CC and not touch my auto loan. Paying off auto loan will cause available credit to lessen by loan amount bringing down my score. However, right now I am trying to pay off all my cards while saving\investing. It makes sense to pay off my CC, however I have multiple cc accounts around 41 open. If I pay one off in full I can only take that $115/mth payment from it and apply it to another continuing the snowball thing Im currently doing over time. If I pay off my auto, then I can apply 600/mth to an acct getting debt down faster over time. You shoul do what is best for you. For me, I am paying of my auto and using that extra to paydown my next card faster and so on. Everyone who has posted is correct, however everyone situation\balances\interest etc is different. Do what works for your particular situation. Just continue to invest in retirement while you do this. :-) Ive paid off cars before and score drop like 12-15 pts. You can gain that back fast the more you get your D/I ration down too. SO no worries. If something happens and you need a line, that paid accout is good and you can always speak directly to lendor and they also see it paid. 

Reply by
titliest72

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Forgot to mention, another thing I do is take the 2pt hit and open another card with 0% on balance transfers and 0% for like 21-24 mth introductory. That way no interest while im paying down that debt with my new free cash from paying off auto. This way it is a win\win over time :-). Consider balance xfer if your credit score allows for one of those cards. The interest may be high after into period over, but bu that time, card will already be paid off and you can close it out due to high interest and open less that a couple years so your score wont take a big hit since still new acct. :-) 

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