Finance - Which to pay first?

mosesbotbol · 11-07-2019, 09:29 AM

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?

emopunker2004 · 11-07-2019, 09:35 AM

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.

mosesbotbol · 11-07-2019, 09:40 AM

Quote:

Originally Posted by emopunker2004

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.

elderboy02 · 11-07-2019, 10:10 AM

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

mosesbotbol · 11-07-2019, 10:27 AM

Quote:

Originally Posted by elderboy02

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.

Brlesq · 11-07-2019, 12:19 PM

Good choice. Another benefit is that mortgage interest on your home is deductible on your fed taxes whereas car loan interest is not.

mosesbotbol · 11-07-2019, 12:27 PM

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.

The Poet · 11-07-2019, 02:17 PM

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?

mosesbotbol · 11-07-2019, 02:23 PM

Quote:

Originally Posted by The Poet

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!

Apoco · 11-07-2019, 06:03 PM

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.

mosesbotbol · 11-07-2019, 06:06 PM

Quote:

Originally Posted by Apoco

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.

dijit · 11-08-2019, 07:37 AM

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.

mosesbotbol · 11-08-2019, 08:29 AM

Quote:

Originally Posted by dijit

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.

jledou · 11-08-2019, 09:52 AM

Quote:

Originally Posted by elderboy02

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

dijit · 11-08-2019, 10:42 AM

Quote:

Originally Posted by mosesbotbol

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"

03-25-2021, 10:09 AM

I had a lot of issues due to my loans back in the day. I think one of the most important lessons I got was to not overdo it. I also relied a lot on credit cards and short term loans in order to enjoy my life at the fullest. There was a time though that I struggled a lot and I started reading books. If you have a look at some of the best reads you will realize that the I am a mastermind when it comes to investing.

retired · 03-25-2021, 03:03 PM

Where do these prison escapees come from? Bots Wanna?

shark · 03-25-2021, 06:24 PM

Quote:

Originally Posted by retired

Where do these prison escapees come from? Bots Wanna?

Or Indee Ahhh

mosesbotbol · 03-26-2021, 12:15 PM

Well an update to this. Car was paid off in November. Was looking to refi to a 15 year on the home, but when I ran the numbers it did not make sense to take on 8K refi charges compared to what I would "save" with a lower interest rate. I just pay more now on a principal only payment which brings me to a similar pay off date as the 15 year without any additional charge to refi.

cmitch · 03-26-2021, 03:27 PM

I just seen the thread so I am not able to give retroactive advice. However, paying principal only payments on a longer term loan will benefit you way more. You are smart to add extra payments to your house. Depending on your interest rate and how many years you owe, you could save potentially 6-8 months off principal off the total loan with just one extra payment. Of course, the shorter the term of the loan, as I said, the lesser the benefit. I dug us out of stupid debt in the mid to late nineties. I did stupid x 10, mostly by buying and then trading a new car. Dumbest thing I've ever done. Then in 1999, my wife was hospitalized for 8 days and we had no insurance. She got the mumps from some tyrant a client brought over during a meeting. Her air passage way closed up and she damn near died. All the money we had saved to build a house was lost paying off doctors and setting up a payment plan with hospital after draining our bank account. We were in bad shape by June 1, 1999. But, by some miracle, we still managed to build a house 1 year later simply by working our asses off. We have not had a car payment since 2004 and only owe for the house thanks to loosely following the Dave Ramsey plan. I strongly recommend listening to him and taking his advice. No more car loans for us.

11-07-2019, 09:29 AM	#1
mosesbotbol That's a Corgi Join Date: Oct 2008 First Name: Moses Location: Boston Posts: 6,171 Trading: (6)	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? __________________ Port Wine & Claret \| British Cars \| Welsh Corgi's

11-07-2019, 09:35 AM	#2
emopunker2004 Central Fla rollin Join Date: Jan 2011 First Name: Justin Location: Winter Springs, FL Posts: 6,171 Trading: (46)	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. __________________ Cigar Asylum: Where all are equal, unless you are from CA, then you are more equal.

11-07-2019, 10:10 AM	#4
elderboy02 Lets Go Buckeyes! Join Date: Oct 2008 First Name: Dan Location: Cincinnati, OH Posts: 12,508 Trading: (133)	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

11-07-2019, 12:19 PM	#6
Brlesq Carpe cigar! Join Date: May 2012 First Name: Bruce Location: Upstate NY Posts: 1,024 Trading: (17)	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. __________________ Hey! How come "Habana" is written on here with a Sharpie ?!?

11-07-2019, 12:27 PM	#7
mosesbotbol That's a Corgi Join Date: Oct 2008 First Name: Moses Location: Boston Posts: 6,171 Trading: (6)	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. __________________ Port Wine & Claret \| British Cars \| Welsh Corgi's

11-07-2019, 02:17 PM	#8
The Poet Il megglior fabbro Join Date: Jun 2009 First Name: Thomas Location: Hickory, NC Posts: 8,420 Trading: (2)	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? __________________ Ninety percent of everything is crap - Theodore Sturgeon.

11-07-2019, 06:03 PM	#10
Apoco Nerd with social skills Join Date: May 2010 First Name: Alex Location: Chattanooga, TN Posts: 1,286 Trading: (37)	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.

11-08-2019, 07:37 AM	#12
dijit Have My Own Room Join Date: Feb 2012 First Name: Mike Location: Brownsburg, Indiana Posts: 2,186 Trading: (48)	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. __________________ Sporting goods raffle for a great cause. PM me for tickets.

03-25-2021, 10:09 AM	#16
Marduk Guest Posts: n/a	Re: Finance - Which to pay first? I had a lot of issues due to my loans back in the day. I think one of the most important lessons I got was to not overdo it. I also relied a lot on credit cards and short term loans in order to enjoy my life at the fullest. There was a time though that I struggled a lot and I started reading books. If you have a look at some of the best reads you will realize that the I am a mastermind when it comes to investing. Last edited by markem; 03-25-2021 at 10:25 AM.

03-25-2021, 03:03 PM	#17
retired Adjusting to the Life Join Date: Feb 2020 First Name: lenny Location: Kanuckistan..for now Posts: 372 Trading: (0)	Re: Finance - Which to pay first? Where do these prison escapees come from? Bots Wanna? __________________ smoke 'em if ya got 'em Hard to believe I beat out 2 million other sperm

03-26-2021, 12:15 PM	#19
mosesbotbol That's a Corgi Join Date: Oct 2008 First Name: Moses Location: Boston Posts: 6,171 Trading: (6)	Re: Finance - Which to pay first? Well an update to this. Car was paid off in November. Was looking to refi to a 15 year on the home, but when I ran the numbers it did not make sense to take on 8K refi charges compared to what I would "save" with a lower interest rate. I just pay more now on a principal only payment which brings me to a similar pay off date as the 15 year without any additional charge to refi. __________________ Port Wine & Claret \| British Cars \| Welsh Corgi's

03-26-2021, 03:27 PM	#20
cmitch Heads up get down Join Date: Oct 2010 First Name: Clayton Location: NW Alabama by the river Posts: 2,720 Trading: (25)	Re: Finance - Which to pay first? I just seen the thread so I am not able to give retroactive advice. However, paying principal only payments on a longer term loan will benefit you way more. You are smart to add extra payments to your house. Depending on your interest rate and how many years you owe, you could save potentially 6-8 months off principal off the total loan with just one extra payment. Of course, the shorter the term of the loan, as I said, the lesser the benefit. I dug us out of stupid debt in the mid to late nineties. I did stupid x 10, mostly by buying and then trading a new car. Dumbest thing I've ever done. Then in 1999, my wife was hospitalized for 8 days and we had no insurance. She got the mumps from some tyrant a client brought over during a meeting. Her air passage way closed up and she damn near died. All the money we had saved to build a house was lost paying off doctors and setting up a payment plan with hospital after draining our bank account. We were in bad shape by June 1, 1999. But, by some miracle, we still managed to build a house 1 year later simply by working our asses off. We have not had a car payment since 2004 and only owe for the house thanks to loosely following the Dave Ramsey plan. I strongly recommend listening to him and taking his advice. No more car loans for us. __________________ No matter what one's status is in society, cigars are the great equalizer where the affluent and common share a love for the leaf. - Me.