Your One Stop Resource for Saving Money.
Renew a CD or Pay Down My Debt? - The Bills.com Blog
Bills.com Blog > Loans Questions > Renew a CD or Pay Down My Debt?
Renew a CD or Pay Down My Debt?
Monday, Sep 28, 2009
Question: I have a $10,000 certificate of deposit (CD) maturing soon. Since CDs are earning only 1.5-3%, would I be better to pay-off my car loan at 6% or pay-down my second mortgage and not renew the CD? I'm not sure which would be better to pay-off or pay down.
Answer: Generally speaking, it is does not make good financial sense to hold investments that are earning interest at a lower rate than the rate you are paying on your debts.Since you are in exactly such a situation, you should consider cashing-out your investments and using the funds to pay down your highest interest debts. For example, if you use the $10,000 currently in the CD to pay off your car loan, your return on "investment" would be equal to the interest you would have paid over the remaining life of the loan.
I expect that this amount would greatly exceed the potential interest earnings on your CD.
Of course, there are many exceptions to this principle, such as investments made into 401(k) accounts, which carry significant penalties for early withdrawal of invested funds. Also, if the CD is your only savings, you should think twice before depleting your rainy-day fund.
I encourage
Of course, there are many exceptions to this principle, such as investments made into 401(k) accounts, which carry significant penalties for early withdrawal of invested funds. Also, if the CD is your only savings, you should think twice before depleting your rainy-day fund.
I encourage
you to consult with a certified financial planner, CPA, or other financial professional to review your debts and investments in detail. He or she should then be able to tell you whether you should cash out your CD and how best use the funds to pay down your debts.
I wish you the best of luck, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
I wish you the best of luck, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
Submit questions/comments about this post:
Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
Information provided by Bills.com is for general informational purposes only and is not be
construed as legal, financial, bankruptcy, tax or other professional advice. Should you
require more detailed information or specific professional advice tailored to your situation you
should consult an attorney, financial planner or tax advisor.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
© 2006 - 2009Bills.com LLC. All Rights Reserved.