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Question for the Money Doctors

Question submitted on Mar 1, 2011.

Question

I have about 80,000 in student loan debt, about 8,000 in credit card debt and about 35,000 in an auto loan. I am upside down on my car loan, so I can''t sell and move to a cheaper car. My loan payments total 1,600 a month and credit card payments are about 600. Rent is 800/mo. I make a pretty good income for a single person, however I am having trouble paying down my credit cards fast enough (even when overpaying the high interest ones). I, also overpay the car loan each month, but it seems to make no headway. I have no savings (except retirement 403b) and I live paycheck to paycheck. Any suggestions to increase savings? I have called the credit companies and they won''t decrease my interest and neither will the auto loan company. Thank you.

Answer

If you are going to be overpaying on the car loan, make sure that the interest rate is higher than on the credit cards, otherwise, use those funds to pay down the highest interest debts first.  The other option is to simply pay what your payment is on the car and use any excess you have to contribute to your 403(b).  It is always better to have assets and debt, than to have no assets and no debt.


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