Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
Typically, I'd go with paying off the highest interest loan first. But consider this: the car loan is fixed at 6.25% for a finite amount of time. The credit card, while only 4.9% now, has no guarantee of staying there, does it? Even if it was a balance transfer, those low rates are usually for a limited amount of time. It could suddenly jump to 12% or more before you've paid it off.

As for which kind of debt "looks better", my gut feel is that the best kind of debt to have is:

1. Home Mortgage - because it's an investment in equity.
2. Student Loans - also a type of investment in your earnings potential
3. Auto Loan - a neccesity. Nearly everyone needs a car.

I tend to place CC debt at the bottom of the heap because it's more an indicator of indulging "wants" instead of "needs" if you are in the habit of carrying a balance. And like others have already said, the scoring agencies know the car will eventually be paid off, whereas the CC balance could easily grow bigger.

Now... are you confused yet?

Cheers, Jeanie :-)
Print the post  

Announcements

TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.