CC vs Auto Loan

[nidena]

My move is in two weeks.  There are a few repairs to be done and that will happen once I'm out: some spackling, new paint, new carpet, etc.  Once the house sells, I'll be paying rent to my bestie for the duration of my stay in her home.  Until the house sells, she's cool with me paying minimal.  Around here, houses go pretty quickly so I'm optimistic.

Projected listing price is $170,000
Current mortgage is $120,000

CC is 11.15%  $11,300  so interest is about $100/mo
Vehicle is 4.34%  $26,000
SL A (sub) $2,750 5.05%
  (payment not due until December)
SL B (unsub) $3,440 5.05% (payment not due until December)

I will be using the CC to accommodate the large expenses of the move: moving truck, hotel stays, etc; but I will pay it off when the house sells since I anticipate netting enough to do so.  With the knowledge that I'll be paying it off completely in (hopefully) just a few months, I feel like I should focus on paying down the vehicle.  Otherwise it's going to fill like I'm filling in a hole that I'm just gonna dig into again.

My question is this:
Pay minimum to the CC and pay heavily to the vehicle?

or pay minimum to the vehicle and pay heavily to the CC?

OR pay minimum to the CC, pay minimum to the vehicle, and pay heavily into savings?

I have $1000 that I'm working with in this situation.

[andi9899]

I don't think I'd be in a rush to pay off a vehicle that is at less than 5%. How about paying minimum on the vehicle, more than minimum on the CC and the rest to savings. That way if you net enough to pay the CC off completely, great. If not, you have some in your savings to play with for debt repayment.

[tskeeter]

First thing is to have a bit of cash for an emergency.  If you don’t have about $5,000 set aside, the $1,000 should go into an emergency fund.  If your emergency fund is good, then look at the other loans.  The CC interest rate is close to three times as high as the interest rate on the car.  Pay down the credit card before paying down the car.

[debthaven]

I'd pay off the CC and put the rest in savings.

[Tiny]

Doing alittle math on the back of my envelope: 
     atleast 4 months til you close on the sale of the house and get $$.   30 - 60 days on the market and then once you have a signed contract - it's a minimum of 4 weeks to close for a cash sale, 6 weeks if they are Golden (perfect credit, all their financial ducks in a row, lots of money in an account) 8 weeks if they are not.)     

You will need to pay taxes/insurances (probably at closing).   You will need to pay for utilities (electric, gas, water, trash) while the house is for sale - I'd guesstimate $250 a month.  Who's picking up the mail and mowing the lawn?     Will you be putting those expenses on the CC? 

How are you paying for the fix ups to the house?  I'm guesstimating 2K to repaint the place, 5K to carpet/new laminated (assuming 1000sq foot house) - so at 7K right there... I'd budget 10K for the pre-sale fix ups...  Is that going on the CC? 

Since I'm guesstimating it will be 4 or more months until you get a pay out for your house.  I would think it is better to pay down your CC rather than any of your other loans.   You will be carrying a bigger balance and paying MORE in interest .  I can think of alot of better ways to spend $100+ a month than to give it to the CC company (that's doing next to nothing for you).    **

I hope you are not expecting to get 50K at closing if the house sells at 170K?   You'll have 10K in realtor fees - and property taxes and insurance(s) to pay.   
I'm guessing you will still have some debt when the dust settles from the sale of the house.    I'd pay off the CC, start an EF, and then pay on your other debts with the proceeds from the sale.   If it was me - I'd want to have some $$ as a cushion/EF, no credit card debt (a solid plan for NOT having credit card debt), and then some of the other loan debt when the dust settles.   

Do you have a 12month/18month plan for your remaining debt? 

** this is my actual answer to the OP's questions... since i wandered in my reply

[nidena]

I didn't realize my succinctness would be a deficit this time.  Last time, I gave too much info and the post derailed.  lol.

Okay, my income is ~$3400.  I will continue to pay my ~$1500 in housing expenses until the house sells.

The repairs to the house and the paint will come out of the sale--I've already discussed this with my realtor.  The carpet will be paid for on the CC and is less than 800 sq ft...shouldn't cost $5k.

I'm not expecting to get $50k.  I'm expecting ~$20-$25k (from which I'll pay off the CC).
The mortgage balance will be $500 less every month I have to make a payment.

After the house is sold, I'll look at what remains after paying off the CC and reassess the debt paydown.

As for savings, I have:

$1300 in my Moving Fund (my cash rewards from my CC go into this)
$550 in my 3-to-6 month savings (contributing to this monthly but most goes towards the Moving Fund)
$1000 in a Mutual Fund (not contributing)
$11,000 in my Roth (not contributing)
$5300 in an Annuity. (not contributing)

[Tiny]

Oct 2, 2019 12:01:37 GMT -5 nidena said:

I didn't realize my succinctness would be a deficit this time.  Last time, I gave too much info and the post derailed.  lol. 

Because there were alot of unknowns... like how big your CC balance will balloon to during the next 4 to 6 months.        It would suck to have your CC balance climb (and the interest cost climb)  while you are throwing everything at, say, your car loan.  You are potentially paying MORE out of pocket in the long run.   Which means you get less good stuff for the money you have.  

In your shoes, I'd try to add as little as possible to the CC balance -- Which means I'd plan to pay the minimums (or whatever you currently budget ) for the other loans and I would be throwing everything else at the CC.

That $100 a month in carrying costs of the CC debt (at it's current level) makes me wince. I wince less at the Car/SL interest costs. Atleast you are still using those things (the car and the education).

[haapai]

When I come into large amounts of money and find myself desperately wanting to use it in a way that YM would not approve of.  I make spreadsheets.  Calculating the interest costs (AKA returns on investments) and nailing down the payoff dates and future balances helps me tremendously.

Have you considered doing the same?  You might feel different about filling a hole that you know that you will dig again if you knew exactly how much less interest you would pay. 

[Tiny]

 The repairs to the house and the paint will come out of the sale--I've already discussed this with my realtor. The carpet will be paid for on the CC and is less than 800 sq ft...shouldn't cost $5k.


Which means you will be paying a premium in credit card interest for a handful of months -- for  something someone else will get to use/have.    I get that you don't have the cash/savings to cover the expense.   I'm just pointing out that it would be better to paydown the CC balance (and stop giving away money) than to pay down your lower interest loans (even though the car loan is for more principle than the CC.  I bet the interest portion of the payment is about $100).  
  
FYI:   800sq ft * $4 a foot = $3,200.00 (and that MIGHT  not include installation).  I think the average is like $7 a sq foot on the low end.    
I've been looking at houses and pricing all the "fix ups" because I'm looking to purchase a new Investment property - and I've got a very tight budget. 

Bet you put close to an additional 10K on your credit card (with the move and your house fix ups).   

I would definitely be paying down your CC over the next few months - and just make minimum payments on your other debts.   

[haapai]

OT.  It won't soak up a ton of money, but paying the interest on your unsubsidized loan when you get a bill may be the highest ROI available to you.  I can't calculate the student loan interest deduction that it will net you since I am fuzzy regarding the taxability of your income.  But you can definitely do it. 

Once you have calculated the size of the deduction, multiply it by your marginal federal tax rate to determine how much federal income tax you will save.  Then eyeball your state tax return and see if it also saves you state income tax.  (I don't know enough about other states' income taxes to say definitively that they all use AGI as a starting point, but mine sure does. This means that anything that reduces my AGI also reduces my state income tax.) 

So keep your eyes peeled for that bill that you don't have to pay from Aunt Sallie.  Choosing to pay the interest during the deferment period instead of letting it capitalize can be one of the sweetest tax moves you can ever make. 

OTOH, since you have far more income than most folks entering repayment, you may not be able to deduct the entire amount of interest, which may make this move far less interesting for you than it was for me. 

ETA:  I am only talking about the interest on the unsubsidized Stafford.  I am not advocating paying down the 5.05% loan, just attempting to point out that in some cases paying $100 in interest instead of letting it capitalize can sometimes lead to tax savings of $19.25 or so, which is a phenomenal annualized rate of return when you consider how late in the year the payment was made. 

[phil5185]

""""CC is 11.15% $11,300 so interest is about $100/mo
Vehicle is 4.34% $26,000
SL A (sub) $2,750 5.05%

SL B (unsub) $3,440 5.05%

$1300 in my Moving Fund (my cash rewards from my CC go into this)
$550 in my 3-to-6 month savings (contributing to this monthly but most goes towards the Moving Fund)
$1000 in a Mutual Fund (not contributing)
$11,000 in my Roth (not contributing)
$5300 in an Annuity. (not contributing) """

I always place my money on its 'highest and best use"  Investments that pay a longterm average of 11%/yr.

IMO, spending money to prepay a 4.34% loan is NOT the highest and best use of your money, I would keep that loan for the full term. Same for the $6000 SLs, they are 'keepers'.

I would cash out that $5300 Annuity, almost any other investment will be better.

I would put $6000 (the 2019 limit) into the Roth - whenever you miss a year that window is closed to you forever, you cannot pay catch-ups later.

[nidena]

Oct 2, 2019 13:02:44 GMT -5 Tiny said:

 The repairs to the house and the paint will come out of the sale--I've already discussed this with my realtor. The carpet will be paid for on the CC and is less than 800 sq ft...shouldn't cost $5k.


Which means you will be paying a premium in credit card interest for a handful of months -- for  something someone else will get to use/have.    I get that you don't have the cash/savings to cover the expense.   I'm just pointing out that it would be better to paydown the CC balance (and stop giving away money) than to pay down your lower interest loans (even though the car loan is for more principle than the CC.  I bet the interest portion of the payment is about $100).  
  
FYI:   800sq ft * $4 a foot = $3,200.00 (and that MIGHT  not include installation).  I think the average is like $7 a sq foot on the low end.    
I've been looking at houses and pricing all the "fix ups" because I'm looking to purchase a new Investment property - and I've got a very tight budget. 

Bet you put close to an additional 10K on your credit card (with the move and your house fix ups).   

I would definitely be paying down your CC over the next few months - and just make minimum payments on your other debts.   

756 sq ft * $2.62/ft with the pad and installation is free on any carpet purchase over $699.99.  Not sure where you're looking but I'm getting carpet from Lowe's.

With my estimated sq footage, it came to $1988
$700 for the moving truck
$600 hotel costs on my two trips (DE to IN in the moving truck; DE to IA in my car; plane ticket in between is already on the CC)
$200 for food for both trips
$400 for gas for both trips
$500 for the crap that I can't think of right now.

Yeah, I think I'll be around $5000 in additional CC expenses so, even if it's a wash, I'd pay less interest by focusing on the CC like you're suggesting.

[nidena]

Oct 2, 2019 16:43:28 GMT -5 phil5185 said:

""""CC is 11.15% $11,300 so interest is about $100/mo
Vehicle is 4.34% $26,000
SL A (sub) $2,750 5.05%

SL B (unsub) $3,440 5.05%

$1300 in my Moving Fund (my cash rewards from my CC go into this)
$550 in my 3-to-6 month savings (contributing to this monthly but most goes towards the Moving Fund)
$1000 in a Mutual Fund (not contributing)
$11,000 in my Roth (not contributing)
$5300 in an Annuity. (not contributing) """

I always place my money on its 'highest and best use"  Investments that pay a longterm average of 11%/yr.

IMO, spending money to prepay a 4.34% loan is NOT the highest and best use of your money, I would keep that loan for the full term. Same for the $6000 SLs, they are 'keepers'.

I would cash out that $5300 Annuity, almost any other investment will be better.

I would put $6000 (the 2019 limit) into the Roth - whenever you miss a year that window is closed to you forever, you cannot pay catch-ups later.

I have approximately 60 months left on the vehicle
The annuity never decreases.  I'm wary of putting that in something that fluctuates and then another 2008 occurs.  The $11,000 in my Roth was from a TSP transfer when I retired from the military in 2016.  I haven't put anything in that bucket of money in eight years.  Are you suggesting I put the money from the Annuity into the Roth?

Ultimately, I'm just trying to get to a point where I'm not spending tomorrow's money today.  12 years ago, I had 11 lines of credit, a (different) car note, and a mortgage.

If investing is intended to be for long term, but I want to be able to use the money in, say, 12 months, why would I pursue an investment route?  Or, better question, which investment route would I pursue?  Looks like I'm starting my own derailment of the thread but it's all good.  I started to read the basic investment thread but that was daunting.

[nidena]

Just made a payment to the CC from the Moving Fund   CC debit $500  MF credit $500 nets balance of $10,800 and $800, respectively
Made another payment from the checking account  CC debit $1000  Checking $1000 nets a balance of $9,800 on the CC.

With some money coming from the sale of some jewelry (for its gold and stones) and two more paychecks from the part-time, I anticipate another $500-$750 to work with so I'll put those all to the CC.

[phil5185]

""I'm wary of putting that in something that fluctuates and then another 2008 occurs.""

History:

The SP500 high point before the 2008 crash was about 1549.

It fell to 735, ie, people lost about half of their money. (that includes me)

And now the SP500 is at about 2900, ie about double what it was at the 2007 high.

So - if you had about a million in 2007, you have about 2 million now - lol, what's not to like about the 2008 crash?

Yes, sell the annuity and put the money in the Roth - and make certain that the entire $16,300 Roth is invested in something that averages 11%/yr. On average it should double every 6 1/2 years -- $32,600 in 2025, $65, 200 in 2032, and so on.

.

""If investing is intended to be for long term, but I want to be able to use the money in, say, 12 months, why would I pursue an investment route? Or, better question, which investment route would I pursue? ""

If I want to use our money (say in 12 months) I leave my own money undisturbed and I borrow what I want to use.  Eg, if I want a new car, I do exactly what you did, I borrow the entire amount and make payments for 60 months.  Even tho I am retired and wealthy, I never pay cash for cars. (Actually we paid cash for a new 1986 Van, that was when interest rates were at about 16%).

[haapai]

The secret to approaching this question is not to think of the credit card or auto loans as debts.  Instead think of them as short term savings accounts that pay interest of 11.15% APR and 4.34% respectively. 

Which savings account would you choose? 

P.S.  I've run the numbers too.  The difference is quite small if you pay off the credit card entirely after four months but it becomes quite a bit larger if the house takes longer to sell. 

[Tiny]

Oct 2, 2019 19:28:45 GMT -5 nidena said:

Oct 2, 2019 13:02:44 GMT -5 Tiny said:

 The repairs to the house and the paint will come out of the sale--I've already discussed this with my realtor. The carpet will be paid for on the CC and is less than 800 sq ft...shouldn't cost $5k.


Which means you will be paying a premium in credit card interest for a handful of months -- for  something someone else will get to use/have.    I get that you don't have the cash/savings to cover the expense.   I'm just pointing out that it would be better to paydown the CC balance (and stop giving away money) than to pay down your lower interest loans (even though the car loan is for more principle than the CC.  I bet the interest portion of the payment is about $100).  
  
FYI:   800sq ft * $4 a foot = $3,200.00 (and that MIGHT  not include installation).  I think the average is like $7 a sq foot on the low end.    
I've been looking at houses and pricing all the "fix ups" because I'm looking to purchase a new Investment property - and I've got a very tight budget. 

Bet you put close to an additional 10K on your credit card (with the move and your house fix ups).   

I would definitely be paying down your CC over the next few months - and just make minimum payments on your other debts.   

756 sq ft * $2.62/ft with the pad and installation is free on any carpet purchase over $699.99.  Not sure where you're looking but I'm getting carpet from Lowe's.

With my estimated sq footage, it came to $1988
$700 for the moving truck
$600 hotel costs on my two trips (DE to IN in the moving truck; DE to IA in my car; plane ticket in between is already on the CC)
$200 for food for both trips
$400 for gas for both trips
$500 for the crap that I can't think of right now.

Yeah, I think I'll be around $5000 in additional CC expenses so, even if it's a wash, I'd pay less interest by focusing on the CC like you're suggesting.

The areas I'm pricing in, the lowest are at about $4 a square foot (for carpet, pad, installation or some types of laminate). I keep forgetting not everywhere is like my "here".

[The Walk of the Penguin Mich]

Oct 2, 2019 19:28:45 GMT -5 nidena said:

Oct 2, 2019 13:02:44 GMT -5 Tiny said:

 The repairs to the house and the paint will come out of the sale--I've already discussed this with my realtor. The carpet will be paid for on the CC and is less than 800 sq ft...shouldn't cost $5k.


Which means you will be paying a premium in credit card interest for a handful of months -- for  something someone else will get to use/have.    I get that you don't have the cash/savings to cover the expense.   I'm just pointing out that it would be better to paydown the CC balance (and stop giving away money) than to pay down your lower interest loans (even though the car loan is for more principle than the CC.  I bet the interest portion of the payment is about $100).  
  
FYI:   800sq ft * $4 a foot = $3,200.00 (and that MIGHT  not include installation).  I think the average is like $7 a sq foot on the low end.    
I've been looking at houses and pricing all the "fix ups" because I'm looking to purchase a new Investment property - and I've got a very tight budget. 

Bet you put close to an additional 10K on your credit card (with the move and your house fix ups).   

I would definitely be paying down your CC over the next few months - and just make minimum payments on your other debts.   

756 sq ft * $2.62/ft with the pad and installation is free on any carpet purchase over $699.99.  Not sure where you're looking but I'm getting carpet from Lowe's.

With my estimated sq footage, it came to $1988
$700 for the moving truck
$600 hotel costs on my two trips (DE to IN in the moving truck; DE to IA in my car; plane ticket in between is already on the CC)
$200 for food for both trips
$400 for gas for both trips
$500 for the crap that I can't think of right now.

Yeah, I think I'll be around $5000 in additional CC expenses so, even if it's a wash, I'd pay less interest by focusing on the CC like you're suggesting.

Are you going from DE to IN or IA?  I just rented a truck last month, the smallest one available for a studio apartment.  Cost for the truck from NY to MN was $930 (including insurance).  Gas for the truck alone was over $600.  It took us 2 nights to get there, hotel rooms were $100-150/night.  It is slower going in a truck.  We were traveling with my sister and brother in a van.  Despite leaving the same time, we arrived 2-3 hours later.  Our total mileage on the truck was just over 1500 miles.  

[Deleted]

Oct 3, 2019 14:11:04 GMT -5 The Walk of the Penguin Mich said:

Oct 2, 2019 19:28:45 GMT -5 nidena said:

756 sq ft * $2.62/ft with the pad and installation is free on any carpet purchase over $699.99.  Not sure where you're looking but I'm getting carpet from Lowe's.

With my estimated sq footage, it came to $1988
$700 for the moving truck
$600 hotel costs on my two trips (DE to IN in the moving truck; DE to IA in my car; plane ticket in between is already on the CC)
$200 for food for both trips
$400 for gas for both trips
$500 for the crap that I can't think of right now.

Yeah, I think I'll be around $5000 in additional CC expenses so, even if it's a wash, I'd pay less interest by focusing on the CC like you're suggesting.

Are you going from DE to IN or IA?  I just rented a truck last month, the smallest one available for a studio apartment.  Cost for the truck from NY to MN was $930 (including insurance).  Gas for the truck alone was over $600.  It took us 2 nights to get there, hotel rooms were $100-150/night.  It is slower going in a truck.  We were traveling with my sister and brother in a van.  Despite leaving the same time, we arrived 2-3 hours later.  Our total mileage on the truck was just over 1500 miles.  

I think she's doing both.  Taking the moving truck to IN, then flying back to DE, getting her car and driving to IA.

I'm confused why the stuff is being left at that halfway mark, but I think that's what's happening!

[nidena]

I'm moving in with a friend and their family in two weeks, in Iowa, until next summer.  During that time, I'll be selling the house and then redirecting funds to whatever debt I plan to pay down/off.  While there, I'll venture to Indianapolis every 4-6 weeks or so--during the good weather months--to look for my next home and hang out with friends and family.  Next summer, I plan to move to Indy.  So, really, Indy is the ultimate endpoint not the halfway point so that's why my little bit of furniture that I'm keeping and boxes of stuff are getting dropped off there.

And, yep, it's drive the moving truck to Indy, fly back here, then drive my car and my two cats to Iowa.  On the first trip, I will overnight near the PA/WV border and get to IN the following afternoon.  On the second, I'll probably just snooze in my car at various rest stops whenever I get tired.

[The Walk of the Penguin Mich]

Oct 3, 2019 21:10:04 GMT -5 nidena said:

I'm moving in with a friend and their family in two weeks, in Iowa, until next summer.  During that time, I'll be selling the house and then redirecting funds to whatever debt I plan to pay down/off.  While there, I'll venture to Indianapolis every 4-6 weeks or so--during the good weather months--to look for my next home and hang out with friends and family.  Next summer, I plan to move to Indy.  So, really, Indy is the ultimate endpoint not the halfway point so that's why my little bit of furniture that I'm keeping and boxes of stuff are getting dropped off there.

And, yep, it's drive the moving truck to Indy, fly back here, then drive my car and my two cats to Iowa.  On the first trip, I will overnight near the PA/WV border and get to IN the following afternoon.  On the second, I'll probably just snooze in my car at various rest stops whenever I get tired.

Have you looked at the towing requirements for your car?  My Forester will tow about 2000 lbs, so when I moved from KY, we added a trailer hitch and a small trailer.  We had furniture we needed to drop off at my sister’s in MN.  Adding the trailer hitch cost about $200.  The trailer rental was another $200.  Dumped the furniture, boxes and trailer in MN, and proceeded onto WA in just my car.  

Luckily, I did not need to haul cats as I had flown him out with me earlier.  

[nidena]

I will not be towing.