Hey folks...just a quick question here. I have been working hard the last couple of years to pay off credit cards and other loans, trying to improve my credit score. In the past couple of years I've paid off over $5000 in credit card debt, college loans, and finally sold my old house. So now my debt consists of: a car loan (with my state credit union) of about $7000 ($400 per month) a citibank personal loan of $5000 ($200 per month) I will be receiving a bonus check from some contacted work I've done for about $8000. Which one should I pay off first? Would any one be better for my credit rating? My impluse is to pay off the car loan-- even though it's a lower interest rate, savings of $400 per month versus $200 a month sounds pretty good. What do you guys think?
What's your goal? As installment loans, I don't think paying either one off would do much for your credit rating other than showing that you owe less overall. There's no usage percentage with them like there is a credit card (so far as I know, anyway). If you're just looking to lower your payments AND the interest rate, you could pay off the citibank loan (which I imagine is higher interest for a longer term) and then pay down your car loan. Then, in a month or two (or less, maybe) talk to your credit union about refinancing the balance on your car loan to lower your payments.
First, pay off the taxes due on the $8,000 (if this was contract work). You don't want this sneaking up on you at tax time. Taxes will take a good portion of it, depending upon your tax bracket and other deductions. It does help your credit rating to lower the balance on installment loans, so you may want to pay off the personal loan first. If you have any remaing funds, you can make a "principal payment" on your auto loan. The principal payment will not lower your monthly payment, but it will shorten the loan term.
Would nabbing a secured credit card, and using it responsibly, help his score tremendously at this point? I suspect it would.
