# Pay of credit card or keep using toward mortgage?



## don kroetch (Aug 25, 2010)

I have a presidents choice credit card. Its twisted sick 19% at my balance of 3500 dollar a month does not make me happy. I pay about 100 a month on it. And 55 of that goes to interest. I DONT use this card anymore.

I save about 4-500 a month and have put it in a savings account. I was intending on putting it toward the mortgage renewal at the end of my 3 year term. But now Im thinking of putting it toward my mortgage every month.

If I save up and use this money to pay off my credit card I could be out of debt in roughly 6 months. But then I would not have that money for the mortgage.

I need some advice here.


----------



## FrugalTrader (Oct 13, 2008)

@ 19% interest, I think it's in your best interest to pay off your credit card.


----------



## m3s (Apr 3, 2010)

Paying off the 19% is better than paying off any mortgage under 19%

You may also be able to get a LOC at a lower % or a low interest CC. That could save you over $35/month in interest


----------



## the-royal-mail (Dec 11, 2009)

We're talking about mopping up spilled water here. You need to do this as soon as possible. Pay off the entire debt first. Priority 1. Worry about the mortgage later.


----------



## andrewf (Mar 1, 2010)

Get a LOC and repay the credit card immediately, if you can. Then repay the LOC, then pay down your mortgage. Don't pay a cent more toward your mortgage than is required until all your other debts are repaid--it's probable that your mortgage is your least expensive debt.


----------



## Addy (Mar 12, 2010)

If you're saving that money per month it sounds like you may have enough to cover the $3500 credit card balance. I would pay it off in full immediately and save yourself $55/m in interest!


----------



## Cal (Jun 17, 2009)

Pay off the CC!


----------



## Elbyron (Apr 3, 2009)

When I saw the topic I almost thought this was some kind of joke post. The OP is obviously aware of how high the credit card interest is, and probably knows his mortgage rate too... so the question can be rephrased as: Should I pay off my high-interest debts first or my low-interest debts? Or even more generally: Do I want to pay less interest each month or more interest?

I apologize if this comes across as sounding a little critical. I mean no disrespect. 

Also, I agree with mode3sour... after you've applied your savings to the credit card, try and get a line of credit to pay off the rest. Even an unsecured LOC will be much less than 19% interest. And check with your mortgage lender to see if they allow you to "skip a payment" or reduce your monthly payments, which will free up some cash to help pay off the credit card sooner. This will make it take longer to pay off the mortgage, but will definitely save lots of money overall.


----------



## Four Pillars (Apr 5, 2009)

Elbyron said:


> When I saw the topic I almost thought this was some kind of joke post.
> 
> ...


That's exactly what I thought.


----------



## m3s (Apr 3, 2010)

I think a lot of people wonder if the massive long term mortgage needs to be paid off before a small CC debt

Not everyone realizes the % is all the matters

Banks and marketing certainly don't help any


----------



## mario 1 (Nov 6, 2009)

Always pay your credit card at the end of the month, always.


----------



## kcowan (Jul 1, 2010)

mario 1 said:


> Always pay your credit card at the end of the month, always.


Actually two days before the due date just to be sure. One day is usually enough unless the due date is after a holiday. (Online payments.)


----------



## dilbert789 (Apr 20, 2010)

mode3sour said:


> I think a lot of people wonder if the massive long term mortgage needs to be paid off before a small CC debt
> 
> Not everyone realizes the % is all the matters
> 
> Banks and marketing certainly don't help any


I think this is the confusion that many people have. If you run the mortgage prepayment calculator on paying down an extra couple chunk, it says you save this big amount, however what isn't really shown is the time frame. 

Best method:
Stop saving money to pay debt... Pay everything you can to get rid of that CC debt. Pay it off as soon as you can. You are paying like 18% so you can have money in your savings account. After you have your credit card paid off and any other debts paid off, then start putting money against your mortgage. Unless there are rules with your mortgage provider that you can only do a certain number of lump sum amounts a year, don't bother saving up. Just put it down when you can.


----------



## lex_rx (Oct 21, 2010)

1) Pay off all CC debts starting with the highest interest.
2) Contribute to RESP, if applicable and get 20% (or more) government grant.
3) Maximize RRSP contributions
4) Receive tax refund
5) Set aside some emergency funds
6) Pay down mortgage with tax refund.
7) Donate some to charity

Annually repeat steps 2 - 6 until satisfied with results.

With new programs add the following:
8) Contribute to TFSA


----------



## sprocket1200 (Aug 21, 2009)

lex, you have all the points. you just need to adjust the priorities...


----------



## the-royal-mail (Dec 11, 2009)

I think it's laughable to suggest that RESP and RRSP should take such a high priority, even before building up an emergency fund for yourself.

I am also concerned that #1 the OP has not participated in this thread and #2 that no one has provided advice or even suggested a shift in thinking to prevent a reoccurence of debt. Too often we focus on telling people to pay off their debts, which as I mentioned above is the equivalent of mopping up spilled water.

You must also locate and stop the leak. Otherwise it will happen again and all us of will have wasted our time.

OP?


----------



## GeniusBoy27 (Jun 11, 2010)

Actually, I think we focus so much on debt, that we forget the other side of the equation, which is investment and income. Can you gain more than you're paying in debt by investing? Sometimes, the answer is yes. Can you raise your income faster? Sometimes, that answer is yes. Sometimes, you do have to invest to move forward.

We don't have an emergency fund, but a significant buffer zone with a large line of credit. To me, that's a viable emergency fund, if needed. I think an emergency fund concept is good for the majority of people, but not everyone.


----------



## andrewf (Mar 1, 2010)

^ You're right. But the rate of interest on debt must be quite low to make a case for borrowing to invest. Like, repaying a credit card debt for non-deductible borrowing gives the same after-tax return as a bond yielding something like 30 - 40%.

Even repaying a mortgage at 6 or 7% is hard to beat in after-tax risk adjusted returns. If your interest is not deductible, you're almost certainly better off repaying the debt than investing.


----------



## Eclectic12 (Oct 20, 2010)

andrewf said:


> ^ Even repaying a mortgage at 6 or 7% is hard to beat in after-tax risk adjusted returns. If your interest is not deductible, you're almost certainly better off repaying the debt than investing.


It depends on the timing/purchases. I'm quite happy to have used my HLOC to have picked up some bargains during the Mar 2009 meltdown. I'm now writing off an interest charge of 3% (was 2.25 until recently) for a purchase of $3.80 that is now trading at $10 and paid $1.20 dividends last year. I just wish I'd doubled my holdings when it dropped to $2.60 before it headed back up.

I'm pre-paying my mortgage from the dividends & capital gains such as Bank of Nova Scotia, at a gain of 100%, in a little over a year.


Of course I'm comfortable with this scheme as I pay off my credit cards monthly, I have an emergency fund and thought through how I would pay off the HLOC if all my choices went south.

Not spending everything I make and keeping an eye out for bargains opens all sorts of possibilities.


----------



## DonnaH (Nov 13, 2010)

*Make a choice*

I think you should pay off your credit card. Why do you need it if you don't use it any more. Get rid of it.


----------



## Y&T2010 (Dec 29, 2009)

Pay that sucker off!

You're giving away 19.9% interest


----------



## andrewf (Mar 1, 2010)

Eclectic12 said:


> It depends on the timing/purchases. I'm quite happy to have used my HLOC to have picked up some bargains during the Mar 2009 meltdown. I'm now writing off an interest charge of 3% (was 2.25 until recently) for a purchase of $3.80 that is now trading at $10 and paid $1.20 dividends last year. I just wish I'd doubled my holdings when it dropped to $2.60 before it headed back up.
> 
> I'm pre-paying my mortgage from the dividends & capital gains such as Bank of Nova Scotia, at a gain of 100%, in a little over a year.
> 
> ...


Your HELOC borrowing is deductible, so what I said is not applicable to your situation.


----------

