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In my honest advice I would stop paying the CC all together and focus on the car. They can't reposes your CC purchases but can reposses your car. Yes there will be late fees and penalties but the CC company will be willing to work with you, even down the road. If worst comes to worst the CC company will file a summons to go to court and the CC company will likely want to set up a payment plan. If ALL your options are exhausted consider bankruptcy, although for such a small amount it probably wouldn't be worth it.
Why would you even suggest not paying on the card at all? The minimum payment on the card is only $35; does it really make sense for them to wreck their credit and incur hundreds of dollars in fees in order to put an extra $35 a month toward the car loan?
Anyway - what do you C-D'ers (and people much wiser about money than me, I'm sure) think? Is it a bad idea to pay off an auto loan before paying off a CC?
Pay off the CC first!! There is a difference in the way interest is calculated on the two different loans so pay the CC off first AND FAST!!
I think mattywo85 is just trying to say that if things got so bad to where they couldn't pay their bills, that cars can be repossessed but CC's are just debts - and you can file for bankruptcy to clear those debts as an absolute last (and not a good) option. If a person is struggling financially, and then their car is taken away, suddenly they are not only struggling financially but they have to find a new way to get to work.
I know from personal experience how the bus isn't a real option in some locations, and for some families. My friend would be up a creek if their car was repossessed. Thankfully, though, things aren't that bad for them - yet. Her husband has a decent job and they are able to get by paycheck to paycheck paying all their bills, paying a little more towards the CC and auto loan, and still have enough for gas and groceries. It's just the things that come up like car repairs, home repairs, etc. that they seem to have trouble with because they have no savings. So they rely on the CC, which is why they can't seem to pay it off. Everytime they get a good chunk of it paid off, something comes up and they feel they need to use it.
This is why I thought paying more towards the car would help. Get the car paid off quicker and once that's done - it's DONE. Suddenly they will have an extra $250+ a month to put into savings while they then focus on paying off the CC. This way they have money for the expenses that come up, they can begin tucking some into savings, and they can focus on the CC without having to then use it, because they have only that one debt then instead of the two.
Believe me - I totally get the pay the higher interest rate debt off first - like I said before, that's what my hubby and I did years ago and it made sense for us. But every family and each situation is different.
The first thing they need to do is sock some cash away so they don't have to keep turning to the card. I'd start paying the minimum until they had at least $1000 cash set aside.
Yes, they will pay more in interest this way. But at this point it's not about how much interest they will pay before retiring the current debt, it's about the amount of interest they will save over the course of their lives by changing their lifestyle so that they don't have to use debt this way in the future.
After they get some money socked away I don't think following your plan is all that bad. They don't have the option of paying less on the car, so if they pay the minimum on the card and throw every available dime at the car it will be paid off in no time, then they can turn around and do the same thing to the card and have it paid off in no time. At that they will have and extra $500 each and every month to save, invest, spend or give away.
I most definitely agree with this. The first thing needed, before any extra is paid on debts, is an emergency fund. Otherwise, when those emergencies come, you'll have to charge it.
$3,000 seems like a small amount in comparison to some. To the OP: Does your friend currently have a budget? The problem with some who are living paycheck to paycheck is a simple lack of planning.
Getting out of debt and staying out of debt requires a plan -- a lifetime plan, and some major lifestyle changes, at least temporarily. The first step to getting out of debt is to stop borrowing!
She says she "does the budget" but I don't really know what that means for her family. I have also heard her say that she "does it all in her head"... to which I told her she must have an amazing brain to be able to keep track of a family budget that way. We are a family of four just like hers and I have to keep an excel spreadsheet and a notebook/binder going to keep track of our budget. (I've been eying budgeting programs like quickbooks (or is it called quicken?) but haven't made the jump yet. There are too many to choose from, I get a bit overwhelmed, and just end up sticking to what I'm doing.) So, I really don't know how she defines "a budget".
She says she "does the budget" but I don't really know what that means for her family. I have also heard her say that she "does it all in her head"... to which I told her she must have an amazing brain to be able to keep track of a family budget that way. We are a family of four just like hers and I have to keep an excel spreadsheet and a notebook/binder going to keep track of our budget. (I've been eying budgeting programs like quickbooks (or is it called quicken?) but haven't made the jump yet. There are too many to choose from, I get a bit overwhelmed, and just end up sticking to what I'm doing.) So, I really don't know how she defines "a budget".
Like most people, she probably actually means that the budget does her.
What I mean by that is that instead of starting with their income and figuring out how to live on that, she looks at the monthly bills and figures out how to pay them. If the paycheck doesn't cover something, out comes the card.
I was in a similar situation, several times actually, with a spendaholic hubby. When I came into some money that allowed me to either pay off the car or the CC I chose the car. Partially becasue I knew it would free up $200 that I could use to accellerate the paying of the CC but more importantly because once the car debt was gone it was GONE and it was in my name only while the CC was in H's. It's terrible to have to think that way but that's how I protected myself financially for years and when we eventually ended up in divorce court I insisted he take his personal debt with him, and he agreed. Granted, he could have forced half on me since it's a community property state and all, but I got lucky and he didn't want to look like a dick in front of our mediator.
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