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Finance expert advice required


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#1 jersey3681

Posted 01 February 2013 - 10:29 AM

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

Edited by jersey3681, 01 February 2013 - 10:31 AM.


#2 Peppery

Posted 01 February 2013 - 10:37 AM

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

#3 MrsSmith247

Posted 01 February 2013 - 10:39 AM

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.

#4 lafonda

Posted 01 February 2013 - 10:39 AM

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.

#5 missy78

Posted 01 February 2013 - 10:45 AM

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

#6 laridae

Posted 01 February 2013 - 10:50 AM

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.

#7 Literary Lemur

Posted 01 February 2013 - 10:55 AM

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

#8 CallMeFeral

Posted 01 February 2013 - 11:04 AM

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.



#9 (feral)epg

Posted 01 February 2013 - 11:05 AM

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.

#10 ///

Posted 01 February 2013 - 11:15 AM

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.

#11 MrsLexiK

Posted 01 February 2013 - 11:26 AM

Pay out debt and then save the money.

#12 KT1978

Posted 01 February 2013 - 11:36 AM

I'd pay off the credit card because the interest is very high.  Then cut it up. Remember you haven't "paid off debt", you have just moved it around to get a better interest rate - the debt is still there!

Rather than pay for the car and leave yourself with no cash for renovations, I would be sitting down and making a renovation and sell plan immediately.  Unless you think you can stay where you are, you need to get selling ASAP.  Paying off the car, then spending months longer paying interest on the mortgage, is not necessarily a good move.

Do you have to renovate?  Could you just spend a few weeks doing minor repairs/repainting and things that cost less than $2000 then sell for a slightly lower price?  Then not use the line of credit, apart from paying off the credit card?  

Once you sell can you use that money to pay off the mortgage and the car loan and be debt free?  Is rent going to be more than your mortgage?  I can't advise too much without knowing your end plan.

#13 jersey3681

Posted 01 February 2013 - 11:42 AM

Thank you all. My end goal is to pay off my debts and start again from zero. The plan is to sell the house (we will have a profit), pay off our debts, move in with my in laws and then save save save until we have a decent deposit to buy a new place on a small mortgage. There were some good points made:

1. The car loan interest is variable so it can actually go lower than 6.9% in time
2. The house might not sell quick...

At the moment what we earn goes for bills, mortgage so we have nothing left to be able to save. If we move the credit card the $100 paid there monthly to cover the interest will have to go into the LOC so we can pay principal and interest and reduce slowly that debt. The car will probably not make a huge difference as it's only 1% difference. The car loan is for another 3.5 yrs.

#14 jersey3681

Posted 01 February 2013 - 11:47 AM

QUOTE (KT1978 @ 01/02/2013, 12:36 PM) <{POST_SNAPBACK}>
I'd pay off the credit card because the interest is very high.  Then cut it up. Remember you haven't "paid off debt", you have just moved it around to get a better interest rate - the debt is still there!

Rather than pay for the car and leave yourself with no cash for renovations, I would be sitting down and making a renovation and sell plan immediately.  Unless you think you can stay where you are, you need to get selling ASAP.  Paying off the car, then spending months longer paying interest on the mortgage, is not necessarily a good move.

Do you have to renovate?  Could you just spend a few weeks doing minor repairs/repainting and things that cost less than $2000 then sell for a slightly lower price?  Then not use the line of credit, apart from paying off the credit card?  

Once you sell can you use that money to pay off the mortgage and the car loan and be debt free?  Is rent going to be more than your mortgage?  I can't advise too much without knowing your end plan.



We have to finish off the house as we don't have yet the occupancy certificate. In order to get that we need to put concrete around the house, pest control and some plumbing work. In order to sell we need wardrobe doors, buy the range hood and put the skirting boards. We will not have rent, we will just pay some money for the house expenses in order to help us save...

#15 Feral-as-Meggs

Posted 01 February 2013 - 11:53 AM

I think the best option is to pay the CC (and chop it), do up a strict but realistic budget for completing the house, and pay the balance on the car loan.

Just throwing this out there, but are you really better off losing your house and starting again from scratch?  Could you ever re-save the deposit/stamp duty/legals?  Just wondering if you have done the maths on renting out the house and using the time with the ILs to pay off the line of credit and the balance of the mortgage payments.

#16 cira

Posted 01 February 2013 - 11:57 AM

I'd suggest finding a financial advisor to review all your finances with you to make sure you are on track for any future plans. I guess I wonder why you have an unfinished house, an unpaid car, a high credit card debt and no savings? (Its none of my business and I'm not asking you to answer this, I just wonder if you might need some help sorting out your money management.)

#17 jersey3681

Posted 01 February 2013 - 12:06 PM

QUOTE (cira @ 01/02/2013, 12:57 PM) <{POST_SNAPBACK}>
I'd suggest finding a financial advisor to review all your finances with you to make sure you are on track for any future plans. I guess I wonder why you have an unfinished house, an unpaid car, a high credit card debt and no savings? (Its none of my business and I'm not asking you to answer this, I just wonder if you might need some help sorting out your money management.)


We had family problems, had two kids and did not work, and had my parents that we had to help and did not get any money back... We want to sell the house as where we live the lifestyle is very expensive so we are planning on moving cities as well.

#18 MrsLexiK

Posted 01 February 2013 - 12:09 PM

QUOTE (jersey3681 @ 01/02/2013, 12:47 PM) <{POST_SNAPBACK}>
We have to finish off the house as we don't have yet the occupancy certificate. In order to get that we need to put concrete around the house, pest control and some plumbing work. In order to sell we need wardrobe doors, buy the range hood and put the skirting boards. We will not have rent, we will just pay some money for the house expenses in order to help us save...


Ok that changes my answer a bit, pay out the CC and don't put anything else on it.  I would then use the funds to ensure you get the occupancy cert and do the renos.  I probably wouldn't bother paying out the carloan until the house sells as you may find the savings you make over the next few months are eaten up if you have early pay out fees etc.  So effectively only using $12K of the line of credit.  

It seems OP you have realised that you are in a tight spot and are making changes for it.  Just put any profit you have after you have paid the car out into an account you cannot just touch.  It might even be good to put the profit into a term deposit then put your savings (which should be the amount you were paying on your mortgage) into say an ING direct (which takes 24 - 48 hours to move over) or into an account you need both signitures to withdraw the money.

#19 Jessie_T

Posted 01 February 2013 - 07:26 PM

QUOTE (jersey3681 @ 01/02/2013, 10:59 AM) <{POST_SNAPBACK}>
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


Why don't you do a balance transfer? The interest rate is as little as 0.99% that's what we did:)

#20 jersey3681

Posted 01 February 2013 - 08:29 PM

Whats a balance transfer OP?




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