wwyd - next debt target
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wwyd - next debt target
| Fri, 01-14-2005 - 8:21am |
Ok, so we finally got rid of the last credit card and now I don't know what to do. I have a car loan at roughly 18,000 (5.25%) and HEL 16,607 (5%). I am taking half of the money I used to put toward credit card debt and putting it in my emergency account. Thanks to a generous bonus, my Freedom account is fully funded for a year.
So the question I have is should I focus my debt reduction effort on the car or the HEL? I think I want to pay of the car, which I could probably do in about two years. Less if I wasn't putting money to the emergency fund. But is there any reason to pay off the HEL first? The payment on the HEL is lower, because it is stretched out over more time. Interest on the HEL is a little less and is tax deductible.
FYI - the car is a bigger pain to pay down on, because principal only payments have to be mailed in. I do all my other banking on-line, so I am irritated and a little lazy aobut writing a check and envelope and mailing it. And if you don't write principal only on the check, they can apply it to future interest. Don't you love how they try to make it difficult?
Anyway, this little voice keeps telling me to pay down the HEL, even though the car makes more sense? Any thoughts?
Sandra
So the question I have is should I focus my debt reduction effort on the car or the HEL? I think I want to pay of the car, which I could probably do in about two years. Less if I wasn't putting money to the emergency fund. But is there any reason to pay off the HEL first? The payment on the HEL is lower, because it is stretched out over more time. Interest on the HEL is a little less and is tax deductible.
FYI - the car is a bigger pain to pay down on, because principal only payments have to be mailed in. I do all my other banking on-line, so I am irritated and a little lazy aobut writing a check and envelope and mailing it. And if you don't write principal only on the check, they can apply it to future interest. Don't you love how they try to make it difficult?
Anyway, this little voice keeps telling me to pay down the HEL, even though the car makes more sense? Any thoughts?
Sandra

Personally I would pay off the car first. You can take the tax deduction on the HEL, but you can't on the car. I say keep tax deductions going as long as possible. Not to mention, the interest rate is a little lower on the HEL. It sounds like you will be able to pay both off early, so that is no big deal.
I do understand about the car being a bigger pain to pay because principal only payments must be mailed in, but the little extra pain every month is worth it. Just make sure you have the correct address. I mailed principal only payment on my car in 2004 to the regular payment address and they took interest out of it, even though I sent a letter stating it was a principal only. I called and they reversed the interest charge and gave me the correct address (regular payments went to CA, principal only went to TX).
HTH,
Kellie
Sandra,
I would pay the car loan. The HEL is tax deductible. We owe approximately $4,700 on our timeshare. We pay 13%. However, i've been focusing on our credit cards. We write off the interest we pay on the timeshare every year.
Just my two cents. YOu do what feels right for you.
MYM
I'd go for the car, for all the reasons everyone else has given and also because the car is depreciating all the time, and you never want to end up upside down in the loan if your circumstances suddenly change.
Most likely your home is appreciating in value.