Hi Money Minder,
I’m in a bit of a pickle here. I’ve got $14,000 in credit card debt which is interest free for another 12 months. I’m currently just paying the monthly minimums, but I want to transfer it to another interest free card eventually.
On top of that, I still have $15,000 left to pay on my car loan over the next 60 months, with an interest rate of 9.9%.
Now, I have $10,000 in cash that I can put towards one of these debts. I’m thinking of using it towards the car loan principal to cut down on the overall interest paid and get it taken care of faster.
But here’s the thing – the credit card debt feels more urgent to me. It was an unexpected IRS payment that I had to make, and now it’s an extra monthly burden. On the other hand, the car payment has been factored into my budget for over a year.
What do you think, Money Minder? Which debt should I tackle first?
Best,
Seeking Financial Advice
Response from THE MONEY MINDER:
Hello There,
Congratulations on having $10,000 in cash available to put towards your debts. It’s commendable that you are looking to make a strategic decision on where to allocate this money to improve your financial situation. It sounds like you have thought through the pros and cons of paying down your credit card debt versus your car loan.
Given the circumstances you described, my recommendation would be to use the $10,000 to pay down your credit card debt first. The unexpected IRS payment causing the credit card debt makes it a more pressing issue, especially as it was not part of your regular budget. By paying it off, you can free yourself from the burden of monthly payments and avoid accumulating further interest when the interest-free period ends.
While paying down the principal of your car loan is also a valid option, reducing credit card debt would alleviate immediate financial stress and prevent it from snowballing into a larger problem down the line. Once the credit card debt is taken care of, you can focus on accelerating payments towards your car loan and reducing the overall interest paid.
In the long run, addressing high-interest credit card debt can lead to significant savings and provide more financial flexibility. It’s crucial to prioritize based on your current financial circumstances and the impact on your overall financial health. Remember, whatever decision you make, consistency in paying down your debts and managing your finances is key to achieving your financial goals.
Best of luck with your financial journey. Remember, THE MONEY MINDER is here to support you along the way.
