Should I pay off my car loan or credit card debt first?
I have a car loan with a $7,500 balance, and a credit card with a $7,500 balance. My dad recently gave me an early inheritance of $10,000. Which loan should I pay off first?
Kudos to you for making such a smart choice with your finances! To answer your question, almost every scenario would point toward paying off your credit card first, especially with the same balance as your car loan. The reason to pay your credit card first rather than your car loan centers around one concept: interest.
Credit cards often have an average interest rate of 16% while car loans have an average rate of 4% to 8% depending on whether you purchased a new or used car. As a result, paying off the credit card balance can save you hundreds of dollars or more in interest.
Paying your credit card off first also boosts your credit score at a faster rate, since it lowers your credit utilization rate. Conversely, paying off your car loan first wouldn’t affect the credit utilization ratio because it’s an installment loan rather than revolving credit.
With less interest paid and a boost to your credit score, paying off your credit card first just makes the most sense.
And if you want to save even more cash to put toward your car loan, take a close look at your car insurance. If you want to easily make sure that you’re getting the best deal on the coverage you need, check out the Jerry app—we’ll get you customized quotes from top insurers in seconds, so that all you need to do is pick the plan that works best for you.
You’ve got this!
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