Should We Pay off a Card or Our Truck

Updated on January 27, 2009
K.S. asks from Hampton, VA
31 answers

I am having a hard time deciding which to do and would like your opinions and ideas...
Should we pay off dh's truck and use that money to pay down our credit cards?
Or should we follow the golden rule and pay off our highest interest rate card?
Both the cards and truck all have an apr of between 5.9% and 7.9% so not really a huge difference to sway me.
I like both ideas, 1. being down to one card having paid off the other AND 2. paying off the truck freeing up a few hundred dollars to pay down the cards.
So I need help deciding. Is there any benefit to paying off a vehicle early?...we will be keeping it no matter what for at least another 3years. So its not like we'd go trade it in just cuz it would be paid off.

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So What Happened?

Wow, great responses, and I think paying off the card won. The only thing that was swaying me was if I pay off the truck then I can make bigger payments on the cards.
The cards are not currently in use and were only to pay for our new roof and siding. We did use 1 card for a few necessity or large (over $100 but less than $200) purchases a few times. Both cards are sitting at 0% and have been. I think I will pay off the lowest card whose 0%apr expired in Feb. And I will have to transfer the other balance to another 0%apr card come July. The only problem w/ this is that there is a fee of $99 to do this and I have already done it twice. I figured it up though and that fee is still cheaper than paying interest, but I do not like that I have added $300 to the balance by doing this.
If we did pay off the truck first the whole insurance thing is a great idea but ours is so low right now that I dont think it could go much lower to make that big of a difference.
As for future debt. We are a cash only family. So we dont plan on incurring any more debt other than the house and cars.
Thanks so much for all your advice.

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answers from Washington DC on

You didn't write the balance on either. I'm assuming balance on credit card is lower than that of the truck. If so, I'd work to pay off credit card, as long as I promise (and dh) promises not to charge again. Take credit card payment and pay off balance on truck. If you are still charging cause there's more outgo than income, work toward paying off truck and using that payment toward saving and credit card payoff.



answers from Richmond on

Pay off the card!credit cards can change you rates if they want to - and the car payment rate is fixed I assume. Highest rate first!



answers from Washington DC on

Ways to triage debt repayment:

1) Pay highest interest rate first. For you, this is not a factor, so it doesn't help.

2) If interest rates are the same, pay off the lowest balance first so you have less number of separate loans to pay.

3) If interest rates are the same and balance amounts are the same, then first pay off the one that has any extra fees, like yearly maintenance fees or memberships.

4) If there are no other fees, and all else is all equal, then pay off the one that annoys you the most!

Best wishes for happy debt repayment!

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answers from Washington DC on


Hello! Coming from a person who has been there and done that - pay off the credit card first and NEVER use it again. My husband are debt free (with the exception of our mortgage) and do everything via cash (debit card).

Keep in mind - when using a credit card means you really can't afford it. So you buy something you REALLY WANT and pay $195 for it on the credit card - if you make your minimum payments each month - it will take you 3 years to pay off that $195 and cost you $554.56 - was it worth $500? (take $195 multiplied by 7.9% = 15.41 (for one month) multiplied by 12 (184.92) by 3 years 556.56 - that's just the simple math and doesn't include anything else you put on the credit card.

I can't tell you how hard it was to NOT use credit cards and going to CASH ONLY - but it was the best move we made. I took us 1.5 years to pay off our credit card debt and we made a HUGE life change in doing that. I took stock of what we had that we didn't use and had a yard sale (several really) and made $1,000 that paid off a credit card. Then I went looking further and realized all the stuff we don't use on a monthly basis and sold it on ebay - if it didn't sell, I donated it to charity. Got rid of excess - it's the keeping up the Jones' or even all the media explotation of NEEDING more - bigger TVs, newer cars, etc. When you get back to basics, you realize all that you really need and want.

The truck is a stable payment - it won't change. It will be the same over the term of the loan. As long as you don't fall behind, you won't lose anything. You plan on keeping the truck so really - use the money on the thing that can ruin a family faster than anything else - credit cards.

If you have enough money to pay off the credit card - I will assume that you already did your taxes and are receiving a refund.

Seriously consider going to a cash only basis. I can't tell you it will be easy or fun. But really, a year from now - you will be in a new boat and won't want to go back. Use coupons to save additional money - make weekly menus to help you save money in grocery shopping.

Make a conscious decision to take charge of your life - instead of spending $40 to go to a movie - wait for it to come out and rent it instead. Need a date? Find a babysitting co-op. Or trade with a friend - we have a friend's son over and they take our boys too.

When shopping - if you are going to put it on a credit card - ask yourself "how much is this really going to cost me?" And "is it worth it?" If you are not going to pay your credit card(s) off every month, then anything you purchase now will cost you more in the long run. Don't think for the moment - think for the future too.

If your husband lost his job - what would your family do? If you don't have credit card debt, you would have a savings account and not have to stress too much.

Since you enjoy crafts - maybe some of the stuff you make could be sold on ebay. That would bring extra money in to the house as well.

I know this is long. It's such a hard decision to go to cash only - especially if you've been using credit cards a long time (I'm 42 and got my first credit card at 18 and at one point had over $60K in credit card debt with NOTHING to show for it. The clothes, shoes and meals weren't worth what I had eventually paid for them - even the electronic stuff - not worth what I ended up paying for them.

Take good care. Know you are not alone. Make the right decision for you and your family's future, not just the here and now.

Best regards,


1 mom found this helpful


answers from Washington DC on

Paying off your truck could allow you to reduce your car insurance coverage and/or your deductible amounts.... that may be of some worth to you.

Also, when the time comes to trade it in or sell it, it's much easier when you own in outright.

However, paying off a credit card and closing the account might help your credit rating depending on how many accounts you have and your credit lines.




answers from Roanoke on

Money is money. Stick with paying off the highest interest item. If it is a credit card, don't run the amount so high again that you can't pay it off every month. Try to always pay off your cards (once you have a good credit history) every month and avoid the finance charges. Then use the payment you would be making on that card to pay more on the next highest interest item, and so on. In the end, you will be ahead in dollars.




answers from Washington DC on

common logic is to pay off the card first, but I would suggest the truck. Once it's paid off, you can change your insurance from full coverage to liability (if you want) and save several hundred a year (usually).



answers from Washington DC on

Every Financial Advisor I have ever talked with has recommended paying off the credit cards first. If you can afford to put an extra 50-100 dollars a month towards the truck payment to help pay down the principal that would be good.

See, the card payment can go on and on and on with additional purchases and fluctuating interest rates, fees, etc. Check with your credit card company about their payment policies. Some will penalize you for paying it off 'too soon'. (Yeah, can you believe it?) Even if you have a 'great rate' on your card, you should call the agency & negotiate a lower rate. So if you're at 5% see if they'll lower it to 3.5% with the expectation that they will go to 4%. You can play up on how good of a payment history you have, the current market, down sizing your debt (but you want to keep them as your credit card company) so how can THEY help YOU with your current interest rate. If they won't drop your rate, consider playing the credit card game and find a card company that is offering a super low rate for a short time period (like 12 months) at a lower rate than what you are at now and transfer the balance of the higher % card to the new one and close the old account. I've seen people do this 'game' and never pay more than 2% on their credit card balances. It requires a little work up front and attention to details (transfer fees, early payment fees, etc) but if you keep up with it, you can really benefit from it.

Most vehicle payment are set for a fixed number of months and, again, check your loan contract to see if there are penalties for paying it off early. IF there are penalties for paying it off early, do some shopping around, see what else is available. Also, see if you can re-fi with the same company and or get a lower rate. Some companies will do a re-fi at a lower rate to keep your business.

Bottom line: Pay off the credit card first, vehicle second. Most everyone has credit cards (big deal) but car payments reflect greatly on your credit score, especially if you pay it off early. Hope this helps :)



answers from Norfolk on

personally, especially if the rates are close, i'd start with the credit cards. highest first then the truck. credit card companies can unilaterally change your rates and your limit far more easily than the car loan holder. get the cards out of the way ASAP! i'd only pay off the truck first if it was at a WAY higher interest rate than the cards. good luck and feel blessed that your issue is where to send extra money as opposed to get to get enough for your minimums!!



answers from Washington DC on

Have you considered applying for a new credit card with no annual fee and a 0% APR for an introductory period, then transferring your balances to the 0% card? This way you don't get charged any interest at all and all the money you put towards paying down your credit card goes straight to principal.

As far as the truck or the credit card goes. A truck is a depreciating 'asset'. I wouldn't even think of it as an asset because it loses its value so quickly. It's more like a necessary evil.

So I'd pay off the highest interest item first and go from there. And if your answer to the above question is I can't get another credit card. Try paying one off in full (highest interest first) and then trying again to get another no annual fee, 0% introductory APR to transfer the remaining balance onto so when you're paying in the future it goes straight to principal.

Be careful though because when the introductory APR period is up, you may want to take a pair of scissors to the card since the regular APR may be sky high. As long as you are disciplined enough to do that then that is the course of action I would recommend.

Good luck! :)



answers from Norfolk on

I would go for the CC first...highest interest rate first...then "snowball" the payments to the next card...then the next...then take all of that snowballed money and put it towards the car payment once ALL the CC's are paid! you can find more info on the snowball effect on Oprah's Debt Diet!



answers from Washington DC on

I would suggest the credit card because you never know when they are going to sneak something in on you. The credit card is a reacurring charge when the truck is not. You can't add things to the balance of the truck when you can the credit card. So pay off the card and put it away or cut in half. Watch Suzi Orman and she would say the credit card for sure. Good Luck on your decision.



answers from Norfolk on

Deffinitely pay off the card. I can tell you from experience this is the way to go. For one thing, the cards hit you up with finance charges and they can eventually increase the rate. You can literally pay on a credit card for life-they just never go away. I can gurarentee you that if you pay the minimum each month, it will never go away. The good thing with the vehicle and any bank loan, is you know where you stand. Rates won't change and if you signed on for a 5 year loan, or even a 10 year, you know there is a light at the end of the tunnel. In that time frame you know for sure that debt will be gone. You can never put that kind of time frame or certainty on a credit card. Good luck!!!



answers from Washington DC on

I am guessing that the payment on the truck is higher than the minimum payments on the cards. I would therefore suggest paying off the truck faster, while making minimum payments on the cards. Then, once the truck is taken care of, you can use the extra money to pay off the cards. At that point I recommend going with the highest interest one first.

Something else you may want to consider, often times credit cards will be willing to allow you to consolidate other cards to them at a lower interest rate (if you have room available to transfer the balance). Also, they will sometimes lower your interest rate if you simply call them and ask them to, explaining that you are trying to get out of debt.



answers from Washington DC on

Yes there is a benefit to paying off your truck early: You save lots of money on interest! I would choose the option of paying off the truck. AF



answers from Norfolk on

I would definitely pay off the truck that way you have more money every month and if you wanted you could pay more on the cards every month. I hate car payments.



answers from Dover on

I don't know how much your husband's truck payment is or how much you are paying monthly on your credit card payments but I personally would pay off which ever you are paying more on ever month that way you are freeing up more money to put toward which ever one you decide not to pay off. Stephanie made a valid point though if you pay off the truck you no longer are required by the bank to carry full coverage on the truck. Good luck with which ever you decide I think it is great that you are trying to pay off things & become debt free.



answers from Washington DC on

It depends on what kind of loan you have on the truck. Things to ask your creditor:

1. Is there a penalty if I pay off my loan early?
2. Do I save on the interest if I pay off my loan early?

Some loans are structured so your interest is calculated daily on the remaining balance of the loan. Those are the ones that can save you money if you pay them off early.

Other loans are structured so that the total amount borrowed includes the interest over the loan period (5 years, for example) and they take that total and divide it by the number of months in the term (for example - $25,000 total loan including interest/ 60 months for a total payment of $416.67 per month). Those loans don't make sense to pay off early since you have already paid all the interest up front and you don't see any benefits to expending the additional income to shorten your payment cycle. You are still paying $25K back to the bank regardless of how fast you do it.

If the second type of loan is what you have on your car, then just keep making the payments as scheduled and use your extra money to pay off your credit card debt. The other thing a lot of people don't know about their credit cards is that you can contact the creditors and ask them to lower your interest rate. If your credit situation has improved since you opened the account, and if you have always made your payments on time (even if just the minimum amount) you may qualify for a lower interest rate which can save you hundreds to thousands of dollars over the course of the time it takes to pay off your balances. The worst thing they can tell you is no, so don't be afraid to call and ask.

Good luck!



answers from Lynchburg on

One benefit, though I don't know with your insurance what actual numbers would be, is that once you pay off a car, car insurance comes down. That way the company doesn't have to pay back a bank and possibly pay for a bunch of other things should there be an accident that totals the vehicle. (They'd pay what the vehicle is "worth", possibly some car rental, etc., instead of paying the bank what is owed, possibly some extra for you, as well as rental, etc.) I know we're getting ready to pay off our loan early and we're looking at the 6mo. premium dropping about $50. It's not much, but we live paycheck to paycheck, and that extra $100 annually will help us out with groceries, kids' clothes, etc. It might be worth checking out with your insurance before making a decision.



answers from Washington DC on

I would pay off the highest interest item, which I would assume are the credit cards. Having a large balance on your cards isn't good for your credit, and even if it the interest rates are just a couple of points higher it will still cost money. Also, you never know what may happen to the truck- it would be a shame to get it paid off and then get into an accident and have to start another car payment.

The only reason I would consider paying off the truck first is if you owe the bank more than the truck is worth, because you don't want to be upside down on a loan. However, trucks tend to hold their value so I doubt this is the case.

Good luck to you!



answers from Washington DC on

Read the fine print on the truck loan before you pay it off. Make sure there are no prepayment penalties on it as well as how interest is paid. Many auto loans have you pay the full amount of interest you would have paid over the whole original amortization period even if you pay it off early. Also, it might be nice to have access to the line of credit on the credit card if emergencies arose if you were to pay that down. Which has a higher minimum payment that you are forced to make each month if you are trying to make your monthly payments less? Good luck.



answers from Washington DC on

Credit card first! There is no benefit to paying off the truck early. The interest rates for the car and the card are not the same thing. For the truck, it's fixed, it was calculated when you bought the truck and doesn't add up any more.

Look up revolving interest and how it works - for the credit card company!

-S. Kav

P.S. I kept my Ford Escort for 14 years, ran it into the ground, then bought my Saturn, and I will do the same with it. I can't see having a car payment for the rest of my life.


answers from Washington DC on

Well if you pay off the truck you would no longer have to have full coverage and your car insurance premium would decrease which would open up more money to use to pay down your credit card. (Of course you want to continue to make at least the minimum payments in the meantime).

Whatever you decide, you're thinking and planning in a great direction. Debt freedom is so liberating and I'm glad to see more people going this route. Keep us updated on what you decide and your progress.

God Bless!



answers from Washington DC on


Which has the higher balance? Pay off the one that has the higher balance and when that is gone add additional payments to the one that is left.
It will go quicker paying it off then you realize.
Good Luck



answers from Clarksville on

I would definately pay off the credit cards first. You have equity in the truck and the longer you pay on it the better your credit will get. If you do the same with the credit cards, it will do nothing for your credit. Credit cards do more harm than good for your credit seeing it is considered "unnecessary" debt.

Just my two cents :)



answers from Norfolk on

Pay off the credit cards first. They're just straight debt. At least the truck itself is an asset, so the debt behind it is not quite so ugly. Just be careful not to rack up the credit card bills again!



answers from Washington DC on

Hi K.,

There is much to be said about living debt-free. You don't say whether you have a lump sum of money to pay off one of these debts. If you are just looking at increasing the payment on one of them, I would avoid the truck, however, if you have the cash to pay this off in full, that would free up a good chunk of money to apply to the other bills. It sounds like you have competitive interest rates on your accounts. I personally like the approach of throwing all your extra cash towards the account with the lowest balance first. There are lots of psychological benefits of eliminating a debt. Then you move on to the next smallest balance, etc. Whatever you decide, best of luck & you are definitely moving in the right direction.


P.S. Due to the financial crisis our country is in, I would strongly caution you to have a savings account for emergencies. If you don't have one, work on building that up a bit before you start aggressively going after the debts. This seems counter-intuitive, but you never know when a job loss will affect your family & you want to make sure you have a safety net. Best of luck!



answers from Washington DC on

According to everything I've read, you should pay off the debt with the highest interest first. However, I've read in a few places that there is an exception to this -- if you have a smaller balance on the truck and can pay that off sooner, which would free up extra $ to pay off the card, then it might be advantageous to pay off the truck first. I guess you really have to check your balances and decided which is the better way to go financially and which will get rid of the debt the fastest.

Best of luck!



answers from Richmond on

The best thing is to pay off the highest interest rate first. They may all be close in % but a few points adds up. Also if the car has a lower %, one of the reasons to go for the credit card is tangibility. If something happens to you, the car loan people will come after the tangible car. The credit card people don't have a lien on something tangible so they come after EVERYTHING. Rule of thumb for borrowing is to not leave a balance for anything that you can't sell or take back. That isn't always possible for me but I try.



answers from Richmond on

I know I am late responding and you've probably already done what you are going to do but this is my advice for what it's worth. I would pay off 1 card. If you have $ left over, pay off as much as you can on the other card. Then I would talk to your bank about refinancing your truck and rolling whatever other debt you have in with it. If you have enough equity in the vehicle (it's worth more than you owe), you can do this. Interest rates are really low right now and your bank should be able to offer you a great rate assuming you have good credit. This would allow you to have 1 payment, no credit card debt and you could use all of the $ you've been splitting between the 3 payments to make the 1 payment and get that paid off ASAP. I'm a big believer in no debt - been down that road and don't want to go back! Good luck!



answers from Norfolk on

if i were you i'd pay off the truck and then get a 0% card and transfer the balance over.

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