Pay down car loans or 2nd mortgage?

I am attempting to pay down my debt. Currently, we have 2 car payments (owing approx $16,000 on each vehicle at 4.9% and 4.5% interest rates through a credit union)and carry a second mortgage of $40,000 at 8.75% interest.We can pay approximately $1500 in addition to our regular monthly payments for these debts. Which of these debts are better to pay off first? What are the advantages to paying off a second mortgage quickly, as opposed to not having as many debtors to which we must pay (i.e. multiple car loans)? Any advice or thoughts appreciated!

Not much difference between the two, but I would recommend paying off a depreciating asset rather than an asset (house) that is supposed to appreciate.

Hi there,

I would like to suggest you to pay an extra amount of $1500 towards the 2nd mortgage that you have. As the interest on it it higher than the car loans and also the amount is quiet high. If you start paying extra towards it, you be fortunately end up paying less interst on the 2nd mortgage.

All the best

I use a timeline to answer questions like this. If you make the decision based solely on one factor (like interest rate) it might lead you to a mis informed decision.

What is the goal?
a) out of debt fastest
b) free up cash flow
c) highest net worth next year
d) highest net worth 10 years down the road
e) something else?

You did not list the car payments. I will assume $450 per month on each car. You did not list the 2nd mortgage payment, I assume $450/month as well.

You have $450+$450 tied up into each car payment ($900) and $450 tied up into 2nd mortgage ($1350 is fixed right now) and $1500 extra per month.

I would put $1500 towards car #1, then $1950 towards car #2 then $2400 towards 2nd mortgage. My logic is the "term" on the car payments, and principal is smaller to free up the $450 soonest. To free up the $450 on the 2nd mortgage would require significant time.

car #1 is paid off in X months
car #2 is paid off in X+Y months
2nd mortgage is paid off in X+Y+Z months

If you reverse this, you would not have access to full $2400 until a point longer than X+Y+Z- might be 1 month, might be 4 years or so- depends on terms of the 2nd mortgage.

I would also add that if you do not have 6 months expenses in the bank, I would strongly advise to bank the $1500 until you have at least 3 months expenses in the bank and probably bank the $1500 until you had 6 months expenses in the bank.