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Old 11-07-2019, 09:29 AM   #1
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Question Finance - Which to pay first?

I have two loans that I pay additional principal on each month; home and car?

Both are at similar interest rates (the car could be a little lower %). Is there one I should focus the additional money I can pay towards principal first? First thought is the home since the terms are longer, but it would also be nice to have the car paid off sooner. Then again the car loses value each month too.

Some months the additional I would pay on the car just goes to the lender's bank and sits in a savings account I had to open (credit union). I figure if there is a major service I have money or I could eventually use that money in their savings account to pay off the loan.

Is there any consensus on which to focus on or just pay some extra on both as I have been doing?
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Old 11-07-2019, 09:35 AM   #2
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Default Re: Finance - Which to pay first?

I'm not an expert but I would pay the car first. Once its paid off then use what you're saving on the car being paid off to pay even more on the house.
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Old 11-07-2019, 09:40 AM   #3
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Default Re: Finance - Which to pay first?

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Originally Posted by emopunker2004 View Post
I'm not an expert but I would pay the car first. Once its paid off then use what you're saving on the car being paid off to pay even more on the house.
It would be nice to have the car paid off. I'd like to buy a 2nd car and was kind of dependent on the 1st being paid. I don't like loans.

I thought since the terms on the mortgage is so long, that the interest would even bigger if I didn't focus on the house as much.
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Old 11-07-2019, 10:10 AM   #4
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Default Re: Finance - Which to pay first?

I follow Dave Ramsey's advice.

Pay off the smallest loan first. Then apply what you were paying to the remaining balance.

Debt snowball!

https://www.daveramsey.com/blog/get-...-snowball-plan
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Old 11-07-2019, 10:27 AM   #5
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Default Re: Finance - Which to pay first?

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Originally Posted by elderboy02 View Post
I follow Dave Ramsey's advice.

Pay off the smallest loan first. Then apply what you were paying to the remaining balance.

Debt snowball!

https://www.daveramsey.com/blog/get-...-snowball-plan
Ok, I think that settles it then. I'll concentrate on the car then.
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Old 11-07-2019, 12:19 PM   #6
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Default Re: Finance - Which to pay first?

Good choice. Another benefit is that mortgage interest on your home is deductible on your fed taxes whereas car loan interest is not.
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Old 11-07-2019, 12:27 PM   #7
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Default Re: Finance - Which to pay first?

Paying the additional principal on the car is kind of a pain. I have to transfer the money to the credit union savings account first. I pay the loan from my default bank, but if I do that for additional payments, it does not go to principal. It's not real pain, but I wish they had a better system.
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Old 11-07-2019, 02:17 PM   #8
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Default Re: Finance - Which to pay first?

The Fed has dropped interest rates 3 times in the past few months. Have you looked into refinancing your mortgage to get a lower rate?
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Old 11-07-2019, 02:23 PM   #9
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Default Re: Finance - Which to pay first?

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Originally Posted by The Poet View Post
The Fed has dropped interest rates 3 times in the past few months. Have you looked into refinancing your mortgage to get a lower rate?
Not really. I worry if I refinance to a 20, the amortization schedule may play against me.

I could look into it and see if it really makes sense. I am at an effective rate of 3.8750% currently on my mortgage.

Looking at a mortgage calc, I could do a 15 fixed and pay similar to what I pay now. Something to consider. I will stop by a bank and talk to them. Thanks!
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Last edited by mosesbotbol; 11-07-2019 at 02:28 PM.
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Old 11-07-2019, 06:03 PM   #10
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Default Re: Finance - Which to pay first?

The strict financial answer is "Pay off the higher interest rate first".

...but if it were ME? I'd pay off the car loan first. The feeling of "awww yesss it's paid off!" is just too good.
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Old 11-07-2019, 06:06 PM   #11
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Default Re: Finance - Which to pay first?

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Originally Posted by Apoco View Post
The strict financial answer is "Pay off the higher interest rate first".

...but if it were ME? I'd pay off the car loan first. The feeling of "awww yesss it's paid off!" is just too good.
The car is at 4.4%. I too would like to get the car paid off and explore a refinance on the home.
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Old 11-08-2019, 07:37 AM   #12
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Default Re: Finance - Which to pay first?

I dont see this as a completely cut and dried case. The fact that extra payments on the car go into a savings account instead of applying to the principle makes it sound like the way the car load is written there may be a penalty for early payment and the savings account is how they attempt to delay your paying it off first. If that is not the case then debt snowballing applies and the smaller of the two should get the extra payment to get rid of it sooner and then move on to the next larger.
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Old 11-08-2019, 08:29 AM   #13
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Default Re: Finance - Which to pay first?

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Originally Posted by dijit View Post
I dont see this as a completely cut and dried case.
I apologize for not be so clear. Within the credit union site which allows me to make principal only payments does not allow me to associate an external bank account. I pay my monthly payment direct from my primary bank to the credit union. If I want a principal only payment, I must do that from within the credit union site; hence transferring money to savings account I needed to open to be a part of the credit union.

Not ideal, but not the end of the world either.
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Old 11-08-2019, 09:52 AM   #14
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Default Re: Finance - Which to pay first?

Quote:
Originally Posted by elderboy02 View Post
I follow Dave Ramsey's advice.

Pay off the smallest loan first. Then apply what you were paying to the remaining balance.

Debt snowball!

https://www.daveramsey.com/blog/get-...-snowball-plan
Ditto
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Old 11-08-2019, 10:42 AM   #15
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Default Re: Finance - Which to pay first?

Quote:
Originally Posted by mosesbotbol View Post
I apologize for not be so clear. Within the credit union site which allows me to make principal only payments does not allow me to associate an external bank account. I pay my monthly payment direct from my primary bank to the credit union. If I want a principal only payment, I must do that from within the credit union site; hence transferring money to savings account I needed to open to be a part of the credit union.

Not ideal, but not the end of the world either.
Based on this information then I agree with those saying Dave Ramsey plan. As an avid practitioner of that plan I can say it works very well. About 4 more years and I will be screaming "I AM DEBT FREE"
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