Pay What?!

Today Rod from SC has some money burning a hole in his pocket. “If you had $14,000 to pay some bills, which payment would provide the best tax advantage:

Pay student your loans of $14,000;
Pay car note of 14,000:
Or put the total into your home mortgage of $60,000?

Please explain your suggestion. My wife and I will gross about $70,000 this year. We just graduated from college and are Army officers. We have no children and have just purchased the condo for the $60k. I don’t have many other deductions.
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Hi Rod,

Congratulations on completing college.

And, I’ll admit, it’s nice to see someone actually wanting to pay off student loans

Let’s see what gives you the highest deductions and lowest costs. OK.

Your mortgage interest expenses are deductible. Your student loan interest, these days is also deductible.

However, since you both have jobs, there is no deduction for your auto loan interest.

Pay that one off, if you are looking for tax attributes.

However, before you do, take a look at the relative interest rates. Your student loan probably has a low rate.

But if your auto loan has a really low interest rate, (like 1.9% or some generous rate, as low as –0-) you may be better off paying off one of the other loans.

Your tax bracket is around 27%.

Multiply that times your interest rate to see how much your net, after-tax, benefit is for each loan.

One tip, though, paying down your mortgage won’t reduce your monthly payment. That won’t change your total monthly expenses.
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So if you have a low-fixed rate, I’d pay everything else of first, then start paying down the mortgage.

Naturally, you’ll find answers to all sensible tax and financial advice and resources – free, where? Where else? At !

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