Ask Money

Targeting debts

Chris Farrell May 13, 2011

Question: I currently have $18,000 of non subsidized Stafford Student loans and 13,000 of personal student loans. Then I have 20,000 in auto loans for 5.375% interest. I would like to begin to pay back the student loans since I am back to work with addition to paying the auto loans off. My question: I have additional funds to pay extra, is it better to pay the additional on the car loan since it is not tax deductible like the school loans? Thanks Joe, Chesterfield, Michigan

Answer: Yes, I would focus the extra money on the auto loan first. It’s a debt on a depreciating asset–your car. I would target the personal student loans next, assuming they’re private student loans. The interest payments on student loans are tax deductible up to a maximum of $2,500 if you qualify. But private student loans don’t offer the financial flexibility of federal student loans to restructure payments if you run into a rough patch.

Question: I currently have $18,000 of non subsidized Stafford Student loans and 13,000 of personal student loans. Then I have 20,000 in auto loans for 5.375% interest. I would like to begin to pay back the student loans since I am back to work with addition to paying the auto loans off. My question: I have additional funds to pay extra, is it better to pay the additional on the car loan since it is not tax deductible like the school loans? Thanks Joe, Chesterfield, Michigan

Answer: Yes, I would focus on the auto loan first. It’s a debt on a depreciating asset–your car. I would tackle the personal student loans next, assuming they are private student loans. The interest payments on student loans are tax deductible up to a maximum of $2,500 if you qualify. But private student loans don’t offer the financial flexibility of federal student loans to restructure or defer debt payments if you run into a rough patch.

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