We sold our spare car and now have $10,000. Trying to figure out the best way to use it. I’m 25, married, with 1 kid and another due in May. Our income is $112k before taxes, about $7,700 net per month. We’ve got a $3,000 emergency fund.
Here’s the debt situation:
Car 1: $10,540 left at 4.3% ($439.25 monthly)
Car 2: $27,500 left at 8.3% ($523.90 monthly)
Card 1: $8,060, no interest until June 2025 ($80 monthly)
Card 2: $4,286, no interest until Feb 2025 ($44 monthly)
Lowe’s: $3,309 at 7% fixed ($63 monthly)
I’m torn between paying off Car 1, saving on interest by putting it towards Car 2, or paying off most of the credit card debt. My wife is coming home in April, which will lower our income. We also have around $1,800 extra each month to put towards debt. Any advice?
I’d probably pay off Car 1 and then put the minimum payment you save towards Card 2. Maybe even add some extra from your leftover cash to get Card 2 done faster. Once that’s done, you can focus on Card 1. This way you avoid interest when it kicks in, and you’ll have more breathing room with payments. Congrats on the growing family, and good luck!
I agree with this plan. Your income is solid, and freeing up that $440 from Car 1 can help you tackle the other debts faster before the interest hits on the cards.
Pay off your debts smallest to largest to build some momentum. You’ll free up cash as you go. Just don’t get back into this much debt again, and maybe think about getting rid of those credit cards.
For someone in this much debt, quick wins make a difference. Getting rid of smaller debts helps you build confidence and frees up money to focus on the larger ones later. It’s more about momentum than just numbers.
No matter what, make sure those credit cards are paid off before the interest starts. With $1,800 extra per month, you should be able to pay off Card 2 in about 2.5 months. Then, you can focus on Card 1 before June. I’d use the $10k to pay off Card 2 and put the rest towards Card 1. That way, by the end of the year, you’re credit card debt-free and can focus on adding to your emergency fund before your wife stops working.
Agreed. Also, after paying off the cards, maybe see if you can refinance Car 2 to get a lower interest rate. That would set you up even better before baby number two arrives.
That sounds like a solid plan. I’m going to try it. I also have a side hustle that brings in extra income, but it’s not steady. Hopefully, that will give us some extra breathing room. Thanks for the detailed advice!
Curious why you had a $10k car sitting around while taking out an auto loan. Understanding that decision might help us give better advice for your spending habits.
We bought the new car before selling the old one. We didn’t trade in because it was a private party deal, and we saved about $6,000 by doing it that way.
How did you rack up all this credit card debt? If you pay off the car, will you be able to handle the credit cards before the interest starts? If not, focus on the cards first.
Are you really bringing home $7,700 a month after housing and other expenses? If that’s the case, I’d focus on paying down the higher interest debts first. Be careful with those 0% interest deals, and make sure you have enough saved to pay them off before they start charging you. You’re doing well, but it’s all about staying on top of those deadlines.