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A while ago, I bought a car paying cash for all but $4k. Took out a loan with the intention of paying it off once some money transfers settled, but then found out I could borrow at 2%(lower than my mortgage rate). So I took out the most I could and paid down my mortgage instead (along with a re-cast to reduce my monthly payment accordingly)
I also took advantage of a 0% offer CC offer and currently have a few large purchases on that card.
I now have the following:
$15k Car Loan @ 2% over 4 years
$6k CC @ 0% (until February 2015 with the option of taking a Chase Slate 0% transfer to push it out another year)
$186k Mortgage @ 3.625%
The only thing I'm debating these days is what to throw extra money at.
I don't think I'd accelerate the mortgage because technically the Car Loan is just an accelerated payment schedule for a portion of my mortgage, so paying that down is essentially paying down my Mortgage.
Between the Car Loan and the CC, the car loan currently costs me 2%/year in interest, so normally I'd focus on that, but the CC debt has a very real cliff because if I don't pay before the 0%, it jumps to CC rate.
So which would you pay off first? The 0% for 18 months debt, or the 2% debt?
Also, I'm coming pretty close to maxing my 401(k) contribution and have enough invested at the moment to the point where I don't want to try and beat the spread in the market, this is what to do with money that won't be invested.
The generally recognized principle is to pay off the balances with the highest interest rate. However in your case youll never pay off that mortgage or car loan before that 0% interest rate expires.(unless you've got like 5k a month to throw at it) So obviously pay that off first, then work on your car. Your mortgage actually gives you good credit as long as youre paying on time. Ironically its seen as "good debt" even though it seems like such a high amount.
If you don't pay off the 0% by the end of the time frame, they often charge the interest retroactively, so you'd have to transfer to another 0% card, but there will be a balance transfer fee. That being the case, I'd pay off the credit card first.
After that, I'd invest the money instead of paying anything down. But you've said you didn't want to do that, so after that, it'd be pretty close to a wash whether to go for the car, or the mortgage, assuming you itemize, so get the benefit from the mortgage interest, the interest rates would be pretty close. I'd probably pay down the car faster to make it go away, even if the interest rate was still effectively just a little less.
I assume you already have a sufficient emergency fund. If not, save up for that before doing any of the rest.
Why do I feel like you are making this harder than it should be?
In my simplified world I would pay the CC, then the car and finally, invest/pay off the house. But also in my simplified world I never carry a CC balance past statement date, nor do I get car loans. My investments had (past tense) been out performing my 3.8% mortgage rate so I wasn't keen on throwing my money there.
If you don't pay off the 0% by the end of the time frame, they often charge the interest retroactively, so you'd have to transfer to another 0% card, but there will be a balance transfer fee. That being the case, I'd pay off the credit card first.
After that, I'd invest the money instead of paying anything down. But you've said you didn't want to do that, so after that, it'd be pretty close to a wash whether to go for the car, or the mortgage, assuming you itemize, so get the benefit from the mortgage interest, the interest rates would be pretty close. I'd probably pay down the car faster to make it go away, even if the interest rate was still effectively just a little less.
I assume you already have a sufficient emergency fund. If not, save up for that before doing any of the rest.
Please find one balance transfer offer which charges deferred interest, just one. Give us the link. Thank you.
If you don't pay off the 0% by the end of the time frame, they often charge the interest retroactively, so you'd have to transfer to another 0% card, but there will be a balance transfer fee. That being the case, I'd pay off the credit card first.
After that, I'd invest the money instead of paying anything down. But you've said you didn't want to do that, so after that, it'd be pretty close to a wash whether to go for the car, or the mortgage, assuming you itemize, so get the benefit from the mortgage interest, the interest rates would be pretty close. I'd probably pay down the car faster to make it go away, even if the interest rate was still effectively just a little less.
I assume you already have a sufficient emergency fund. If not, save up for that before doing any of the rest.
Actually, the reason I mentioned the slate transfer is that there's no fee for a transfer there. While the initial card is a retail card and is racking up deferred interest, the transfer to the slate card would wipe that out and eliminate that problem entirely. As Petunia 100 pointed out, balance transfers don't come with deferred interest, they're 0% intro offers that change rates at the end. I'm assuming it would probably jump to something like 15%
I am leaning towards the CC, just because of the closer deadline. Just don't like wasting money paying interest, so the ~$300/yr on the Car Loan annoys me. It's better than it would have been if it was still part of my Mortgage though.
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