What to do with my tax refund

I will have about $3k in my refund. It will go to pay down debt. Should I use it to pay down my car loan? It is currently at $5,300 with an interest rate of 7.25%. It is my smallest debt. I have some credit card that are at about 18% but they all have balances of $9k or more.

Dave Ramsey says to pay off your smallest debt first, which for me is the car. Any advice from those who got out of debt using his system?

 

I should also say that I can pay $1300 per month on the car and still make my minimums on all the rest so I would have the car paid off in two months if I use the tax refund on it.

 

my first guess would be to pay off the card debt first no matter what. At that much higher a percentage, you're doing yourself a favor - and clearing off a card for a balance transfer, or opening a secure bank loan will save you in interest charges.

I've heard people talking about the idea of smallest debt and snowballing it up, but I have to guess that the interest rate takes priority.

 

I'd say go for it. The feeling of accomplishment you will get from paying it off will clear the way for you to focus on your credit card debts and will probably far outweigh the little bit of interest you might save by paying down the higher interest credit card debt first, especially if it will only take two months to do it.

I'm jealous. We have to pay this year.

 

One thing that causes me to not want to do that is the possibility that I will pay down the card and then run it back up. I would not intend to do that but stuff happens.... I used the tax money last year to pay down a card then I had to pay for some dental work for my kid.....

 

two chicks at the same time.

 

nice reference


thelt, you spent nine grand on your kids' teeth?

 

No it was $1800. I got about $3k back last year too and paid it on a card but had to put $1800 back on it.

 

Thelt, from my own experience, I truly do believe there is real value in paying off the smallest first and taking that payment against the next debt. It worked for us because it kept us motivated. Just my take and it won't be awful either way but I know the snowball worked for us.

 

The car is not worth much, probably about half what I owe on it. I will probably just drop the collision insurance once I pay it off. That should help too.