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Which debt to pay down first?


debtfreesoon11
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First poster here!

 

I have the 2 following debts:

 

Auto loan: $35,000, 1.75% rate, 5 years, $610 payments

Student Loans:  $27,000, 3.68% rate, 20 years, $200 payments

 

 

I should not have bought the vehicle that I did and have realized this. But anyway, I have some extra cash and was looking to which debt to pay down first.

 

!) The Auto rate is very low, likely below the rate of inflation. Also, I think I would be better off putting extra cash toward my retirement or mutual funds which would likely get a better return.

2) The student loans are beneficial becuase of their helping with my taxes.

 

Anyway, which should I put this monthly amount toward, auto or student loans?

 

 

Thanks!

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If possible you may request that the bank extend the auto loan term to 6 years lowering the monthly payment and increasing your monthly cash flow.

 

Then take the cash and put towards the student loan.

 

You can also (depending on your particular situation) look into student loan forgiveness programs to see if there may be a way to diminish or eliminate the 27k of debt over a relatively short period.

 

Here is the government site for more info.

 

http://www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service

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You could also take the extra and pay the car loan and sell the car.  You already stated that you should not have bought that car...so get rid of it!   Use the car proceeds to get a different car...and even if you get another payment...it won't be a 610 dollar monthly payment.

 

That will benefit you more than the other...since you won't have that 610 bucks a month going in the trash on the depreciating asset.

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