Car payment or credit card?

[ButterflyBlood]

Financial advice being sought:

Basically I've run into some difficulty now, and by that I don't mean that I'm going to have trouble paying my bills or buying food, more like that I won't be able to buy as many drinks when out or my collector's edition vinyl records all the time, or just drive around Minnesota to random places playing Ingress every weekend. I ran into some unforseen expenses (basically some dental complications and a few electronic failures), and ended up overestimating the amount I'd be making as well, meaning I'm now in a crunch more than normal. In the run up to this I ended up perhaps overpaying on my car loan, because I want it paid off ASAP. I have only $450 to go on it, but it only has about $3 interest a month at this point. On the other hand in the process I ran up about $700 debt on one credit card. While that doesn't sound like a whole lot, in October I have a car insurance payment that'll about double that due (I pay it in six month blocks) and I want the card open by the time the next payment is due in April. To further complicate things I have another credit card with a little less than $300 on it, while that also doesn't sound like a lot this is a card I hardly ever use (mostly because their website sucks and I didn't even want it and was kind of tricked in getting it) and only did to pay an unforseen expense a couple months ago. And to top it all off my rent is going up next month, while I shouldn't complain as this is the first time in five years, it's still $45/month extra I have to pay.

Part of the reason I used the card was to get points that I can redeem, but it'll only be about $40 credit in the end. And I realize now I was basically charging expenses to the card and not paying it off entirely so I could put the rest of the extra money to my car. My normal payment is about $100/month, so it'll be paid off in a couple months no matter what I do as long as I stay employed, I just want it ASAP partially because that's another $100/month I can spend elsewhere. Plus I can drop my collision insurance, about $200 worth for six months.

So I've been thinking of two plans:

1-Quit charging the card but paying only a small amount like $100/month off on it and putting all extra money onto the car. If I do that I could get the car paid off very soon, possibly in only a month, and then can use the money from my car payments to get the card paid down, plus my tax refund should help.

2-Quit paying any extra money to the car only let the monthly payments automatically come through. Pay all extra money off on my credit cards and let the car payments just end naturally.

I've already gone into forebearance for six months on one of my student loans. Obviously this doesn't prevent me from paying, and I might if I have extra money, but for now clearing out the credit card debt and getting the car paid off is my top priorities. This frees up about $250/month. This also means I can pay off the extra credit card in only one month, so I've cut my payments on it to the minimum.

So what should I do?

And I think I just epitomized the crisis of early adulthood, making more money than you ever have before but also having far more bills as well, and the general stresses of life and discontentment causing you to spend so much on top that to get away from it all. If I didn't spend so much on alcohol, or going to do silly distractions, or in seeking sex I probably wouldn't have these problems.

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[Wounded Bear]

1. Go after the credit card...

Think of this. The car payment has an end to it. Once you pay it off it's done. Credit cards have a nasty habit of hanging around forever and ever. If you can pay off at least one of the cards, do so as fast as possible.

[Recursion]

2. Advice from a guy who's had to skip all kinds of payments

Pay the credit card on time if possible; delay everything else.

I know it seems counterintuitive. But in terms of your lasting financial health, it's the way to go.

Obviously, I am not a professional financial advisor; these are simply my thoughts.

[ConcernedCanuk]

3. Pay the car for sure, keep the insurance also.

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If you default on your car loan, good-bye car. An accident that collision would have covered,, same thing. Good-bye car.

I've seen many people, especially with new-found employment with a decent pay get into financing a vehicle - then losing the vehicle because of a job loss, even still owing some money for defaulting - more debt, but no car.

As you indicated your c/c only runs 3$/month.

I noticed you did not include the obvious solution - seriously cut back on your extravagant expenses, dining, vinyl etc.

A true story, my own.

About 30 years ago, I fell in love with this 69 Lincoln Mk III - guy wanted 900$ for it. I was making fairly good money, but my credit sucked - ergo - no loan available. As an active guy socially at the time - I was barhopping 3-4 nights a week.

Did the math - went back to the seller offered to pay a deposit if he'd hold it for a month - he said OK, but not one day over a month.

So - quit the bar scene cold turkey - allowing myself one six-pack at home on Friday nights.

I got the car.

CC

[pinboy3niner]

4. Life lesson

Your dilemma is not as complicated as you think. And you will be slightly older and much wiser from this.

You call yourself butterfly, but you are...Grasshopper. And you will learn, Grasshopper.

Best of luck!

[steve2470]

5. agreed, I voted for him to reduce the CC payment

He will be just fine, it seems. Wiser too

[caraher]

6. Also...

You might change your withholding to reduce your tax refund. If it's substantial you're basically loaning the government money interest-free; tax refunds are not bonuses you get paid by Uncle Sam, but repayment for money you didn't need withheld. This could give you a little extra every month now, when you need it, rather than next spring.

[NuclearDem]

7. Normally, I prioritize paying off the smaller balance first

The snowball theory of debt: pay off the smaller debt and then take whatever you budgeted to pay that debt monthly and put it towards the larger balances.

Of course, usually the situation is reversed, where the car loan is the greater balance, but it's still what I'd recommend.

[lastlib]

8. Generally, pay down what is costing you the most in interest

Cut down the alcoholic stuff--your liver and kidneys and bank account will thank you! Pay down the credit cards as quickly as possible!! They'll eat you alive with finance charges. The car loan can be paid off gradually. I would say it's your lowest priority. Get the student loan paid off next. That can't wait, and if you ever have to declare bankruptcy, you can't get rid of that one. It's probably costing you more in interest than all the other debt combined. Interest is an expense you get nothing back for-- "Buying a dead horse," as my grandfather would say.

[Xyzse]

9. Place more emphasis on the Card

1 - You already have an automatic draft on the car, with only $450 left. That would probably take only a few more months. That would probably disappear in 3-5 months, so I wouldn't worry about it any more. I find car payments far more important at the beginning to quickly bring down the amount of time it would take to pay it off.

2 - Credit cards, if not taken care of quickly can balloon. They also have the bad habit of changing the terms of your contract. Well, not quite, it just means they change your APR dependent on how much debt you have in there sometimes. It is also most likely, if not still in the introductory rate, have a much higher APR than your car which has a fixed APR. (APR = Annual Percentage Rate). In that sense, you can pay hundreds to thousands more for what you initially charge it for if you do not take care of it quickly.

Any how, what I usually do is do an excel sheet.

I figure out what the limit is, which is the total value of the credit card, loan, and stuff. It remains blank if it is a monthly bill.
Figure out how much you have available for each one, then how much you have outstanding. What the minimum payments are, and what is their APR.

Then, figure out how much you are willing to spend monthly paying bills. Allocate it to each bill, to see how much you would pay in to it.

With Fixed percentage bills, I suggest you paying only the minimum, till you get rid of the credit cards that have higher APR.

So, next, look at the credit cards that you can take out immediately. Get rid of the balance quickly so that frees up more money to pay off the other ones, which you could then figure out which has the higher APR, and go after those first.

Good luck!

[Myrina]

10. Pay off the one charging you the highest interest & fees.

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