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What debt to pay first?

We have $6000 in savings. Should we put it on the home loan or the car loan?

Combined weekly earnings: Net $776
Weekly expenses: $714
Mortgage: $140,409 (fixed at 6.79 per cent)
Car loan: $9367 (fixed at 12 per cent for seven years, no early pay out penalties)
Savings: $6017.

This is a great question and before having a crack at it, I’d like to recommend everyone who is reading this to adopt your clinical, great reporting approach to all of your vital statistics. It reminds me of how an organised businessperson arranges all the vital data that tells him or her how the business is going right now and its clear existence helps work out where you’re heading in the future.

I’ve never been asked about paying a car loan off in preference to a home loan, but it makes sense. Because I haven’t got access to your loan details it’s risky to make a bold call. Generally for a variable home loan a big payment will result in a very big saving over time.

This website has a home loan calculator which might be a start for when your loan switches to a variable one down the track. What I suggest is you approach your car loan provider and tell them you want to pay off the loan, ask for the figure and compare it to what you’ll pay each year under the fixed arrangement. It could be exactly the same, but you’d simply be paying it off early.

Then I’d talk your lender or a mortgage broker and ask them what happens to your home loan if you pay down the principal? In the age of value-adds to keep customers and the need to maintain loyal customers if lenders won’t play ball with you, then leave them when your loans go off their fixed status.

By the way if the lenders won’t help, please contact me.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, January 07, 2010

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