Reply to What to do first? Debt vs Savings/Retirement

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]OP here. Here is an update to the debt situation:

[b]Credit cards: $7K @ 24%[/b] (These have been paid)
Car: $30K ($820 payment monthly w/48 months remaining) 
Car: $17K ($492 payment monthly w/48 months remaining) 
[b]DH's CC consolidation loan: $11K @ 5% interest [/b](He just got this a few months ago)[/quote]

This loan couldn't have helped his credit score.

I think you have a good and realistic attitude, OP!  It must feel good to have those cc's paid off.  Now set aside, $1k for emergency [b]and put any other cash you have directly toward that consolidation loan[/b].  Then you can sit down with DH and work on how to get through or sell the cars.[/quote]

Bad choice.

The next debt she needs to take care of is the $30K car loan.  That is at 11% interest.  The second car ($17K) is at 7%.   The consolidation loan is at 5%.

In a situation this bad, I don't agree with the Dave Ramsey theory that you pay the smallest balances first.  You have to go with the financially more sound policy to pay off the highest interest loans first.  The feel-good effect of paying off loans has been achieved by paying off the 24% CC debt.  Now, go for the path that gets them out of debt fastest and that is paying down the loan that will cost them the most money if they leave it outstanding.

They are paying more than twice the interest rate on the first car than the consolidation loan.  Based on her $820 monthly payment, she'll be paying $9360 in interest over the next 4 years on that car ($2340/year).  She's paying $6616 in interest on the second car ($1654/year).  It's harder with the consolidation loan.  We only have the rate and not the APR, but they are paying about $550-600 in interest per year.  Paying off the high interest rate first car loan will save them over $1000 in the first year alone vs paying off the consolidation loan.  That's just throwing more money away.
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