I have a question about which debt to pay off first. My budget is set up so that I have approximately $500 left over after expenses and bills are paid each month. Sometimes it is closer to $700-800. If I didn’t have any debt, this would obviously begin funding my emergency fund. However, I still have a substantial amount of debt.

Here are my debts:

Citibank Credit Card (0% interest promotional period ends August 2013) = $110.00 minimum, ~$7,200.00 total

2008 Honda Civic 3.25% interest = $336.00 minimum monthly payment, ~$3,600.00 remaining (Last payment if only paying the minimum would be July 2013)

So here is my question: Would you put all extra money toward the car payment or pay down the credit card before the promotional period expires. I could probably pay off the car in 3-4 months maximum. Paying down the car quickly would give me $336.00 extra per month to put toward the credit card. However, the Citi card will jump to 16% interest if I don’t pay that off by the end of the promotional period.

I realize that paying the credit card is the safest way to do this, but this car was my first mistake out of college and I would like to get rid of the monthly payment.

Any input and discussion would be greatly appreciated. Thank you.

No one can answer that without knowing how much cash you will be applying per month.

Build yourself a spreadsheet then see where it is best to apply money.

Let's say it takes 1 year to get the credit card paid off. You will only be paying 16% interest on a much lower balance for only a couple of months. The car loan though you pay 3.25% every month.

But we really need to know how much you will be prepaying in order to do the math.

I can give you a more detailed number when I get home, but for the car payment I will definitely be paying $336 per month. Plus, the $500 extra would be $836 per month if I decided to pay that first.

If I decide to pay the credit card first I would pay a total of $600 per month toward the card. My normal $336 payment would continue toward the car in that scenario.

Thanks for your response!

Nine months (november-july) of paying $336 does not pay down $3.600 in debt. You would still have $623,46 in debt after that july payment if the interest rate is 3,25%.

With $110+500 the next six months you would be able to get that credit card down to $3.540 before that massive 16% interest rate hits you. The interest would be about $47 that first month. If you pay $836 on the car instead the car loan is gone in 4-5 months (february-march), and you would have $946 to throw at that credit card with no interest 1-2 months before a wopping $71 a month interest rate hits you. You would have to work that another 5-6 months to get rid of it, paying a couple of hundreds in interest.

I would attack the credit card with all I got first, then car loan.

Is rolling the credit card balance to another 0% card before August 2013 an option?

My gut would be to pay everything extra to the credit card. Even if you think a balance transfer will be possible, you never know for sure what the situation will be when August 2013 rolls around.

I realise I calculated interest on the card from april, not august (blooper). That gives you 10 months, not six. Paying $610 per month get you down from $7.200 to $1.200. You mentioned that you sometimes have some extra money. It would be great if that could add up to $1.200 during those 10 months so you pay off the CC debt before august.

At about the same time you would pay the last payment on the car loan as well? Right?

Thank you all for your responses!

Rolling over the card to another 0% APR card is definitely possible. I would have to look into charges for balance transfers though. It would definitely become a possibility if I can get the Citi card under $3,000.

@Northernlight: That is certainly the plan. I would love to have them both paid off around the same time. And now that I think about it, $1,200 is about what I expect for my tax refund (I (now) know it's bad to have a refund, but I just started reading this blog ). Perhaps putting all that money toward the card would help finish it off for good!

I will try to update how things go!

Pay down the card before interest spikes - don´t get another one! Don´t change car just because it is X years and you payed down the debt on it - drive it into the ground and save up for replacing it with cash.

Also, if you are now to this ordeal; take a serious look at your expenses in general, I am shure you can slice a percentage here and a dime there with no or little sacrifice. Do it!

Keep this path until you are debt free and have 6-9 months of expenses in your emergency fund.

a tax refund isn't always a bad idea. Many people can't manage to save the same amount if it was spread out over the year. conversely, many of the same people can't manage a windfall without blowing it either.

I'm riding this Civic until it dies. I only have 50,000 miles on it and it is 4.5 years old. No problems so far (knock on wood) and I've taken good care of it. I'm hoping it can last me at least another 5 years.

As for the credit card debt: I plan to use the card for gas and groceries and pay it off every month completely. That way I can get points for plane tickets, etc. I will definitely be careful this time around after seeing how long it takes to pay off the debt. I have paid off two credit cards worth $1,750 total in the past three months using the advice in this forum.

Mostly, I'm looking forward to gaining financial independence and saving!

If you drive as much as you did until now, in 5 years the car will have some 105.500 miles on it at the age on 9½. Why bother changing it then if you take care of it? 15 years and 167.000 miles would´nt be a problem for a well kept Honda?

Buting a new to you Honda, a couple of years old for $9.000 will probably cost you $2.000 in price depriciation the first year alone, another $1.500 the second and $1.000 the third. The well kept clunker would probably just keep it´s miniscule value ($1.000-1.500) over those years. Suck it dry!