What is the best way to pay of these debts?

There are three debts to pay. Car loan at 5.25% with a balance of $5300 (pay $355/mos), credit card with 2.99% interest until Nov 2011 and a balance of $6400 (minimum pymnt is $76/mos) and car ins with an o/s bal of $3000 (pymnt currently $295/mos). There is $10000 to put towards these debts. What is the best way to distribute the money?


I owe for the following

a car loan ($3400),

a credit card ($6400)

and car insurance (it is a monthly payment but I want to pay it in full) which is $3000.

Update 2:

Ok listen up people. I want advice not judgement because you have absolutely no idea what is happening in my life but let me shed a little light.

The Credit card is not used. It was a balance transfer from a previous debt that was not all mine.

I was cut off and had a single vehicle accident that was deemed my fault as the driver ran off - thus the high insurance

the $10000 is not a loan.

My credit is actually quite good that people feel the need to tell me how good it really is.

I am not a reckless spender. THANK YOU

Update 3:

Sorry for the confusion. I entered the wrong amount for the car loan. It is just one car.

I owe $5300 for it.

I am paying monthly for car insurance which was just renewed in Sept. I pay it monthly but there is a fee for that so I wanted to pay the balance.

I owe approximately $3000 - or less.

I owe $6400 on the credit card - it has a very low interest rate until nov 2011.

12 Answers

  • 1 decade ago
    Favorite Answer

    $10,000 is a nice hunk of change, but must be used wisely to maximize it.

    In short, pay off highest interest first, 2nd - 2nd, and keep some operating cash, and apply the freed up cash from some bills to pay other debts.

    # 1 pay off the 5.25% car loan since that is the highest rate right now. = $5,300

    #2 what is the additional detail car loan $3,400 (sic) ?

    ... if true, and a higher interest rate, pay it off also. {And crimps following ideas.}

    #3 do NOT pay off car insurance unless they give you a good deal discount for doing so. Just set up automatic payments to make sure it gets paid. (You are getting a zero percent loan .... but $295 x how many months? And I agree with others, can you get it cheaper elsewhere?)

    #4 pay more principal toward your $6,400 cc amount (say $300 ?? a month - which you will have now having no car payment) so as to keep some cash reserves while reducing the balance knowing that November 2011 the interest rate will jump up. You could also pay a lump sum $2,400 (instead of paying the insurance in a lump sum). Get the cc paid off by October, before the interest rates jump.}

    Source(s): Accountant and number cruncher
  • Anonymous
    1 decade ago

    Sell your car and purchase something more economical if you can otherwise I pay the credit cards off first.

    Try the "snowball" method where you pay the most on the car with least amount of debt , once that is paid take the money you were using on that card and combine it to the next card. Yes you aren't looking to pay the most on the card with the highest interest rate but idea is to pay off the cards as quickly as possible.

    Until you have paid off your credit card I would pay your car insurance as a monthly payment. Why the heck is it so high?? My husband and I have two trucks and only pay 678.00 for 6 months. You may want to do some shopping and ensure you have the best insurance rates you can get.

    After you paid your credit cards then apply the money to your car but don't forget to put some money back into savings while you do all this (paying credit cards ,car etc) , if you have any sort of emergency you then have savings to fall back on rather than be tempted to use a credit card again.

  • 1 decade ago

    Pay off the credit card. Destroy the credit card. Close the account over the phone.

    Remaining money on Car insurance next. Always keep that current. What if you needed to file a claim.

    Paying minimum balances on credit cards is not very smart. Intro rate expires real fast, then goes sky high.

    Carrying a balance on car insurance is foollish.

    Your mortgage is at least a tax deduction for income tax. In your case, your payment mostly goes to principal now. But if you had the money, no mortgage is GREAT.

    Hope you didn't take out a loan for the $10,000.

    What if you lost your job with all those payments?

  • Alex
    Lv 7
    1 decade ago

    First put $1,000 in emergency savings in case of car accident, medical emergency or job loss... plus it's a safety net in case a bill is due the day before payday. Then look at the balance, interest rate and minimum monthly payment for all of these debts (insurance isn't exactly a debt, but include it too). Assuming that insurance policy is for 6 months, you're paying quite a premium for monthly payments, something like 18%.

    There are a few approaches to prioritizing debts: lowest balance, highest interest rate, highest minimum monthly payment. Lowest balance will mean paying off one account the fastest. Highest interest will generally save you more money in the long run. Highest monthly payment will mean more money freed up for the next debt.

    But it's not just about the dollars, it's also about the risk. If you fall behind on car payments, they may repossess the car. If you pay down the credit card, you'll have some room to charge more if an emergency happens (but typically can't make a car payment). If you go with monthly insurance and fall short one month, you'll end up paying lots more to reinstate it and possibly get a ticket for no insurance which could mean not only ticket and court fees but possibly losing your license.

    My opinion: go with paying the insurance as first debt priority. With $1,000 going toward emergency savings, that leaves $6,000 to go toward the car or credit card. Not knowing the interest rates or monthly payments, it's hard for me to say which of those is best to pay down... but I'm leaning toward the car because it would reduce your monthly bills and make the car yours without the risk of repossession. If you were to pay off the car loan, could you modify your insurance coverage and save money? If you could put another $500 in savings and increase the insurance deductible by that amount, how much would it save you? Doing this would mean you'd still be able to recover if you were in an accident by having the deductible in savings.

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  • 1 decade ago

    How do you get an outstanding balance of 3,000 on car insurance? If you do not pay they cancel your policy? I do not understand this bill.


    Pay Off the insurance $3,000

    Put the rest in a savings account and make payments.

    Pay Credit Card $550 per month, The account should be paid off before November 2010

    Make your regular car payment.

    Making payment will look good on your credit report but be sure not to spend that money on something else.

    Find a new insurance carrier immediately. Check out state farm, allstate and any other major carrier. You are being reamed.

  • Anonymous
    1 decade ago

    Pay off the credit card and only use it for emergencies or destroy it. If you cancel it that will not look as good on your credit history.

    Pay off the insurance.

    Keep making the car payments so it reflects as a good thing on your credit. When you have extra then go ahead and put it towards the car.

    I agree with the other poster in that I hope the $10000 isn't a loan you pulled or else you will be in a bigger mess than you started.

  • 5 years ago

    Crikey! They've left it a while. Why? I would go into the branch and ask them what they're talking about and from what date - when they say 10 years ago, I think they'll feel pretty stupid. Speak with your local Citizens Advice Bureau - I am pretty sure this debt should have been cancelled years ago. I have been told that it's a 6 year term to reclaim debts - which is why you can only claim excess bank fees for the last 6 years of your account.

  • Vic J
    Lv 5
    1 decade ago

    Use Dave Ramsey's plan:

    List your debts smallest to largest, and pay the smallest one first. Does not matter the interest rates. As each debt is paid off you will feel the surge of victory to keep going.

    Personal finance is 80% behaviour and 20% math. The amount of extra interest you pay by doing it this way amounts to about a kid's meal.

    Snowball the payments. As you pay off a debt add that payment to the next one. You will be amazed at how fast you will be out of debt.

    Make sure you write a letter canceling the credit cards.

  • Reena
    Lv 7
    1 decade ago

    For the sake of your credit score:

    Pay off the credit card completely and pay off the second car loan for $3000.

    Now you have excellent credit because your credit card is paid off and only one monthly loan payment at a very favorable 5.25% interest rate.

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