Question

Discussion - Financial advice:

What would you advise and why?

Susan and Jose rent an apartment and have been saving for a house. They now have $10,000 in the bank. Susan owes $4,000 on a 8% interest rate credit card; Jose owes the last $4,500 of a $30,000 loan at 3% on his car. Susan wants to pay the credit card and car off to eliminate the debt. Jose wants to keep the cash in the bank and continue saving for the house. What are the pros and cons of each one’s argument?

Answer 1

keeping the cash in the bank :

pros: the balance accumulated for the house will be increased by a higher amount, if savings are kept at the bank for the house.

cons: although keeping the cash in the bank,and continue savings will only earn the minimum interest on the balance in the bank. as opposed to the interest being paid on the credit card and the car loan, the savings at the bank will be lesser , than the interest to be paid on the loans. overall they would be losing out on a lot more money on interest cahrges, if loans will not be paud.

paying off the loans:

pros: paying of the loan, will free the couple of the loan, and the interest charges incurred by them on the credit card.

cons: paying of the loans, and not accumulating for the house, will result in lesser savings for the house. as a result thye may have to save a bigger amount next time to make up for the lost savings.

i would advise them to pay off their loans, and be debt free.being debt free, increases their chances to take risks and their savings will be more because the interest charges will be over. and they will be able to save more, and be closer to their goals of buying the house.