Source
r/personalfinance•
bujweiser

Settle This Score: Pay Off Credit Cards or Personal Loan?

Debt

My wife and I have 2 scenarios with the ability to pay off some debt:

Debt:

CC1: $3,800 balance @ 0% for the next 16 months ($60/month payment)

CC2: $4,100 balance @ 0% until next month ($70/month payment)

Personal loan: $8,900 @ 6.99% ($225/month payment)

We have enough saved up to pay off either the personal loan, or both credit cards.

My wife wants to pay off the credit cards because mentally it would be very liberating (I don't disagree), but I'm lobbying to pay off the personal loan because it is carrying interest ($60 in interest last month!), and would put $225/month back in our pockets instead of the $130 combined from the CCs. We are also moving states during the summer, and the personal loan is tied to our local credit union, so paying it off would tie up any loose ends we would have here. If we choose the personal loan route, we have a current offer to transfer CC2 to a 0% card for 18 months, so that is very tempting.

Thoughts?

Posted Mar 12, 2021, 3:14 PM UTC · edited

420
KCPilot17​•

When do the CCs pick up interest again? At what rate?

7
bujweiserOP​•

The one that's $3,800 has the 0% promo for another 16 months. The other is actually up next month, but an option would be to do a balance transfer to another 0% offer (just pay the 3% fee).

2
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8
KCPilot17​•

...at what rate?

2
bujweiserOP​•

The card that's about to run out will most likely be an undesirable rate, like 17%+

Either way, the balance will not stay on that card next month whether it's paid off or not.

2
KCPilot17​•

Then pay that one that is up in full, throw the rest at your personal loan. Then keep attacking both of the remaining accounts.

7
coletain​•

Paying an instant 3% fee when you could just pay off the account makes no sense. Pay the credit card that is up first.

1
bujweiserOP​•

I was looking at it from the angle of hammering the loan out because I will pay more interest on that than the 3% fee of the balance transfer with CC2.

1
coletain​•

But you can pay it now and pay 0 interest. Makes no sense to eat an instant 3%. This kick the can down the road kind of logic is how people get into this whole mess in the first place.

2
Delini​•

Check the agreement in the cc.

Often the 0% interest rate is only applicable if you pay off the balance in full before the year is up, and if you fail to do so you’ll be charged the interest at the end of the year.

If that’s the case, paying off the credit cards will net you more anyway.

7
cheekyuser​•

This! To clarify, “charge the interest” as in all the interest that would have accrued during the 0% period aka backdated. It’s how they get you.

2
bujweiserOP​•

paying off the credit cards will net you more anyway

What do you mean by this?

1
Delini​•

The interest on the 7% loan is probably less than the penalty for not paying off the full balance on the 0% cards before the end of the term. If so, paying off the 0% cards would end up costing you less money.

You'd have to check the agreement to know for sure, but it wouldn't be surprising if that was the case.

2
Diretrexftw​•

Whichever route you take, the extra monthly income should be put towards the remaining payments. If you can make it work, then it will get those other bills down faster and save you that much more on the accumulated interest down the road.

I would say to pay off that CC that is almost out of time on the 0% interest for sure, but I am not super savvy when it comes to ...really anything. heh

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1
4and2​•

Pay off the loan first and then put that $225 into paying off the credit cards. When does the 0% run out and what does it go up to?

1
bujweiserOP​•

CC1 is 0% for 16 more months

CC2 is 0% only until next month. Will either have it paid off if we decide to, or transfer it to another 0% offer and pay the transfer fee.

1
4and2​•

So if cc1 can be paid off within the 16 months I would definitely not pay that one off with the money.

Also, the balance transfer fee is usually about 3% so you are looking at about $120 fee for transferring that to another 0%.

You said the loan is $60 interest a month, so 2 months of interest pays the total interest on CC2 (assuming you can pay it off within the new 0% term).

It makes most sense to pay the loan and free up the $225 if you can have a 0% interest on both cards and have them paid in full within that time.

If the cards would revert to 20% interest then it would make more sense to pay them and keep the lower interest loan.

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1
TheGingerHybrid​•

IMO you should pay off the personal loan. Here's why:

  1. The loan carries interest.
  2. The cost of the loan is far greater than the CC's combined, paying this off first will allow a much greater payment on principal for the CC's
  3. If the CC's carry a balance you will see that balance and be less likely to incur more debt on them.
  4. Getting out from all financial responsibility from your current location prior to the move is always desirable. When you deal with banks/credit unions they always have some other issue you have to pay for, submit docs for, etc. Having this done prior to moving will make transition easier in the new location.
0
RiskyControl​•

No Brainer. Pay off the personal loan, then plow that payment into the credit cards.

-2