Author Topic: Which loan to pay off first  (Read 1000 times)

ngpalmer3

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Which loan to pay off first
« on: March 28, 2017, 10:20:05 AM »
I have a student loan with a balance of about $6000 at 6.5% interest and about 9 years left on the term, a car loan with a balance of about $6000 at 6.5% interest and about 2 years left on the term, and $6000 cash.  Which loan should I pay off?  My thought was to pay off the student loan so that 2 years from now when the car loan is gone I am debt free.  I know I probably don't have the discipline to pay off the car loan and then take that $250/month and put it towards the next loan every month.

Thoughts?

MarioMario

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Re: Which loan to pay off first
« Reply #1 on: March 28, 2017, 10:27:56 AM »
Your reasoning is good and will save you money on interest; as long as you and confident you will be able to pay off the car loan every month.

charis

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Re: Which loan to pay off first
« Reply #2 on: March 28, 2017, 10:39:28 AM »
I get what you are saying about not trusting yourself to be disciplined.  But as long as you are planning to pay off both within two years, it makes more sense to pay off the car loan first because you can deduct student loan interest during the two years that you are paying it, but you can't do that with the interest on your car loan during that same period.

Tiger Stache

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Re: Which loan to pay off first
« Reply #3 on: March 28, 2017, 11:37:34 AM »
pay the student loan off first. jezebel is right, you can deduct the interest on the student loan, but 6.5% of 6000 is probably not something that would drop you into a lower tax bracket. you'll have an entire loan paid off and be able to take dead aim on the car loan, and take it down. you'd probably be able to close it out in less than two years.

Joel

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Re: Which loan to pay off first
« Reply #4 on: March 28, 2017, 01:46:29 PM »
I would pay off the car loan first.

1) You can deduct student loan interest so the rate of return is actually less than 6.5%.

2) By not having a car loan, you might be able to lower the insurance coverage you have on your car, saving even more money and thus making your rate of return higher than 6.5%.