[jersey3681]

Currently we have a credit card with $7000 amount limit and we owe the maximum amount on it. The interest rate is 15.99%. We also have a secured personal loan for a car where we owe $18,000 amount on it. The interest on this one is 7.99%. We applied and have been approved for a line of credit of $25,000 with interest rate of 6.9%. We need to finish up our house (probably we need around $5000 for that) so we can put it for sale and then pay off the credit. What is best to do?
1. Pay off credit card, pay off car, try and save $5000 (which will take us a few good months)
2. Pay off credit card, pay half the car and keep the rest for renovations
3. Pay off the credit card, finish first the renovations and then put the rest for the car
4. Neither - you should't have taken another line of credit

This post has been edited by jersey3681: 01/02/2013, 10:31 AM

[Peppery]

Based on the info you have provided, i would select option 3.

[MrsSmith247]

Definitely A.

You need to clear your debt, not add more. You should be saving a bit in interest so that can go towards your saving to do up the house for sale.

Then do up a strict but manageable budget and stick to it, otherwise you'll be stuck in a debt trap and will have to keep borrowing money to get anywhere.

[lafonda]

I am no expert, but I would pay off the credit card and pay $13000 on the car and use the remaining 5k for the house so you can sell.

[missy78]

Firstly ensure you have an adequate emergency fund - even just start with $1000. This will ensure that once you start paying off your debts, if you have an expensive emergency you don't just go back to where you started.

Then attack the debts in order of highest interest - so credit card first. Would you end up with a profit from selling your house? If so, then I would prioritise the renos - otherwise leave them until you have the money for them (ie not going into debt for them). That's just me though - we are pretty risk averse in our house.

A disclaimer - not an expert, but I have been in a similar position

[laridae]

Pay off the credit card - it has the highest interest rate and you want it gone asap.
Pay off some of the car - the interest rate is a little higher than the LOC, so you will get some benefit.
Use the rest of the LOC for renovations, and then sell & pay it off, & the car loan.

So, basically, option 2.

Option 1 - I wouldn't do as you will need to wait & save some more money, delaying the renovations and selling - meaning that you will be paying off the LOC for longer.
Option 3 - I wouldn't do as its better to knock some off your car loan - so you don't pay as much interest (as its a higher rate), but make sure you do leave enough for the renos.
Option 4 - well, what you did is fine, you are getting rid of higher interest rates and replacing them with lower ones. Its pretty sensible really.

[amoral lemur]

What is your end goal? That would impact your decisions. What is the plan after your house is sold?

[CallMeProtart]

A.
Those interest rates are debilitating and will set back any attempts to save. There is no guarantee your house will sell fast, and meantime you'll be racking up compounding interest bills.

[epg]

Technically move the high interest debts (car and credit card) to low interest debt (line of credit). Chop up credit card. Continue paying same (or more) payments on loans. If you're disciplined with money do the renos before paying off the line of credit, if you have a history of sliding into debt then pay off everything and save the money for renos and get rid of the credit facility.

[JECJEC]

How long is the car loan for and how do you expect interest rates to move in that period?

Generally pay high rate debt before low rate debt but you may find that in 3 years that the car loan was a lower rate then the prevailing variable rate and you now are paying a higher rate on the debt. Also investigate what if any termination/prepayment fees are on the car loan.