full of Questions lately...question for Dave Ramsey followers

[disabledvetswife]

Okay, in a nutshell:

college funds - check
emergency fund - check
moving to a new house next year - will have enough $$ from the sale of our house to put 20% (or more) down

debt:
Car - $16,492.xx @ 5% - $485/month
CC - $10,400.xx @ 5.90%

savings (above & beyond CF, EF, etc) - $10K

I am not sure which reflects worse, but do know we need to pafoff the car before we buy.

What does DR suggest: pay $10k on car or cc?

[jenrose]

Pay off CC then snowball that towards the car. He always says payoff the lowest balance first then snowball the payment you were making on that towards the next lowest balance.

[BringontheWonder]

I don't knowing all your circumstances and income to debt ratio, but...

I think Dave would say you have too much car and encourage you to downgrade and then use the $10K to get rid of the credit card debt. I think he would have you be debt free before getting the new house.

Great job saving up so much cash, BTW.

[Dengineer]

and ITA with both PPs.

[CW&M Mom]

CC is considered worse debt than the car. The car is tangible and you can see it, touch it and it has worth.

Pay off the CC first.

[disabledvetswife]

Just an FYI, we have to have an 8-passenger vehicle.

Not that I'm ever planning on anything happening financially, but if the car was paid off - it can't be reposessed, whereas the cc debt, they can't "take" anything.

[BringontheWonder]

Just an FYI, we have to have an 8-passenger vehicle.

Not that I'm ever planning on anything happening financially, but if the car was paid off - it can't be reposessed, whereas the cc debt, they can't "take" anything.

If something happened financially and you still had both debts but couldn't pay for both, Dave would say to stop paying the credit card completely and to pay essentials first (house, food, lights, transportation). I think he would still say to downgrade the car in that situation, too. When I say downgrade, I don't mean get something smaller that wouldn't suit your family, but to get an older car that might have tons more miles on it but that you can buy with cash. With the current monthly payment and balance for the car, $485 of your monthly income is going to the car for the next 3 years. If you were able to swing a cash payment for a beater family car, that $485 could go into savings for the new house.

[llamalluv]

The $10,000 is cash above and beyond college savings and 6-12 months of expenses in your emergency fund? Write a check to the credit card TODAY and get rid of it. That's what I would do.

We are on the final year of our debt snowball. Almost $100K of debt will be gone by next Christmas.

[Aurianne]

You don't "really" have an "extra" $10,000 savings because you owe that money on your credit card bill, so you're actually paying 5.9% interest out for the sake of having that $10k.

Pay off the credit card debt immediately!

Next - is the card a no annual fee rewards type of card such as an Amazon Visa card? If so, then use it to pay for groceries or other purchases you routinely make each month in order to accumulate tax free rewards BUT pay it off in full at the end of each month. Never spend money with the card that you don't already have to pay it off with.

If it isn't a no fee rewards card I recommend you apply for one and when you get it cut the one you currently have up (don't cancel it though because it does help your credit score look better - just cut it up so you can't use it)! If it doesn't give you some value for using it why have it?

Credit cards that offer rewards can be used as tax free income extenders IF you pay them off in full each month.

As for the car loan, as long as it's manageable in your monthly budget just pay it off as scheduled, or if you can afford to make some extra payment towards principal each month then pay it off faster. Then don't buy another until you have cash to buy it with if possible. :)

[amylynne01]

If you have $10,000 to pay on your car or cc, I would definitely pick the cc. It is worse debt than a car payment.

Your emergency fund should be very bare bones, whatever it will take to get by, not get ahead. So it should be basic living expenses - shelter, food, utilities, clothing, insurance, car. You can drop internet/tv/cell phone (if you have a landline) if someone lost their job, so those expenses don't need to be included in your EF. Is there any way you can take a little from your EF to help pay down the car as well?

Dave Ramsey actually says to pay off all debt first before fully funding a college and emergency fund. And a retirement fund should come before a college fund because your kids can get student loans, but there is no way for you to pay for retirement without money you've saved. So having your EF and college fund are not really doing anything for you at this moment because you're still spending unnecessary money on interest.

If you're okay with paying the car monthly, then keep going on. If you're looking to make a drastic move, then I would pay off the cc with the $10,000 from savings and look at ways to pay off your car with funds from your EF and college fund. Then buy a new house with NO debt! :)