Dear Driving for Dollars,
We bought a home and a car last year. We have one year of reserves in savings to cover all of our bills. In a few months, we expect we’ll have several thousand dollars extra that we’d like to use to further pay down our debt. Is it better to pay down our 30-year mortgage loan or our five-year car loan?
First, congratulations for being in such a good financial place. To make your decision, consider the details of your mortgage and car loan. Look at your interest rate and compare how much you are paying in interest over the life of the car loan and mortgage. Also consider any tax breaks you are getting from the loans. For example, many people can write off the interest paid on their mortgage loan on their annual taxes. To help you through your decision, use Bankrate’s debt pay down calculator.
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