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I don't have alot of debt, a few credit cards about $4,000 +/- and a loan of $3,700(a motorcycle purchase). I'm receiving a check for $3,500 and trying to decide what would be best to do with it. The loan payment for the motorcycle is $100 a month with about 3 years remaining. I'm leaning toward paying off the credit cards. I'm about 8 years to retirement.
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What are the interest rates on the cards vs the motorcycle loan? Considering the balances are almost the same, I'd pay off the higher rate balance. -
Priority should be set based on the interest rate charged on cards and on the loan. Pay highest rate first!Originally posted by surgtech1994 View PostComment
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Both of the debts are pretty close to your ... gift. Normally I would say paying off the lower balance debt means you can get out of debt sooner but sometimes that means more in interest on the other debts (kind of strange to wrap your head around the numbers until to run them both ways). I don't know your min. payment on your credit cards but I'll try to run through some opinions...
1. You pay down the motorcycle and after 2 additional payments ... you own it free and clear. Then you can use the $100/month you were paying on it to pay down your credit cards ... quickly.
2. You pay down the credit cards but don't stop paying the $50-$70/month you were paying as minimum payments ... keep putting that amount on the card until it is paid off. Then you can use that money to pay off the motorcycle much earlier.
3. If you have more then one credit card with a balance you could pay one (or more) completely off which could really help with the motivation to use their former minimum payments to pay off either a remaining credit card or start paying off the motorcycle ahead of schedule.
I will admit to not paying off my own truck loan early even though I knew it would get me out of debt about 4 months sooner ... but that was because it was a 0% loan.
You will be coming out ahead either way you go because you are using the extra money to reduce your debt! I would recommend that you don't spit the money up and pay just a little extra on several things ... PAY SOMETHING OFF! ... I promise it will bring a smile to you.Comment
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Always pay the higher interest debt off first. It will cost you less money if you do it this way.Comment
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I would suggest paying off most of the credit cards, but my only problem with that is do you have the ability to not run it up again? If so, I would rip them suckers up and pay the cc off asap. If your retiring what do you need them for anymore? Just use a visa check card for everything.Comment
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I hate to bring this up, as I know it wasn't what you were asking, but if you've still got debt, and are unsure how to handle $3,500 - how will you be able to retire in 8 years?Originally posted by surgtech1994 View Post
Do you have a significant amount in savings that we don't know about? If so, why not pay off both debts??
And if not, what is your plan to save enough in 8 years to be financially able to retire?Comment
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I'm hoping you have a defined pension to provide a regular income when you retire. Do you have an emergency fund? With no change in plan, the motorcycle will be paid off only 5 yrs. before retirement. Finally, credit card statement[s] explain how many years it takes to pay off. For example, with minimum payments, a $ 315. balance takes three years to pay off; $485. takes 5 yrs, 3 months to pay off according to my AMEX statement.
You've had some great suggestions and there are lots of ideas to help you transition to a reduced income retirement.Comment
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