Pay Off Credit Card or Auto Loan First?
Should I pay off all my credit cards before I finance my car?
I have about $17k, in credit card debt, and I just got a return of $17k on an investment. My wife and I are in need of a second car. Should I pay off all my credit cards and finance the car, or should I put the $17k toward buying a car?
- Prioritize paying off your highest interest debt first.
- Avoid accumulating new debt once you pay off your old debt.
A very good question, which involves relative rates and specifically where the highest return on your money is.
If the interest rate on your credit card debt is higher than the interest rate on your auto loan (which is almost always the situation), then you should pay off the credit card debt. The benefits are less money going to cover interest fees and possibly a lower monthly payment. Ideally, you would use the extra cash flow to pay down the total debt amount faster, getting debt free in a shorter amount of time. Be sure not to "run up" your credit cards once they are paid off!
If you would like more information, please visit us online at Bills.com. We have also attached a free guidebook on budgeting and financial planning, including a section on getting debt free.
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