Should you pay off a credit card or a car loan first?
Updated October 11, 2026 · JANE Wealth Management
Pay off the credit card first. Keep paying the minimum on the car loan and send every extra dollar to the card, because at 24.99% APR the card costs more than three times as much interest per dollar as a 7.4% car loan.
$1,823
less interest, and debt-free 3 months sooner, by sending an extra $200 a month to the card first instead of the car loan.
The math
Say you have two debts and $700 a month to put toward them:
- Credit card: $6,200 at 24.99% APR, $160 minimum payment
- Car loan: $14,500 at 7.4% APR, $340 minimum payment
Both minimums come to $500, so there's $200 a month extra. The only question is where the $200 goes. When the first debt is paid off, its whole payment rolls over to the other one, so you pay the same $700 a month either way.
| Extra $200 a month goes to | Total interest paid | Card paid off | Both debts paid off |
|---|---|---|---|
| Credit card first | $3,513 | Month 22 | Month 35 |
| Car loan first | $5,337 | Month 38 | Month 38 |
Same money out of your pocket each month, but the card-first order costs $1,823 less in interest and has you debt-free three months sooner.
Why the highest rate goes first
Interest is charged on whatever balance is left each month. In the first month, the card's $6,200 balance at 24.99% builds up about $129 in interest. The car loan's $14,500 balance, more than twice as big, builds up only about $89 at 7.4%.
So a dollar of extra payment on the card stops 24.99% interest, while the same dollar on the car loan stops 7.4%. Paying ahead on any debt "earns" you exactly its interest rate, guaranteed. That makes the highest-rate debt the best place for extra money. This is often called the avalanche method: pay minimums on everything, put every extra dollar on the highest rate, then roll that payment to the next-highest rate when it's gone.
In this example the card is also the smaller balance, so the other popular method, the snowball (smallest balance first), picks the same debt. When the two methods disagree, the avalanche pays less interest.
Where this fits in the order
Paying off high-interest debt is the third step in the order the Next Dollar Planner follows. Two steps come before it:
- Starter emergency fund: one month of essentials, at least $1,000
- Full employer 401(k) match
- Debt over 8% APR, highest rate first (the credit card)
- Full emergency fund: 3–6 months of essentials
- HSA, if you have an HSA-eligible health plan
- Roth IRA
- Debt at 4–8% APR (the 7.4% car loan lands here)
- Max out the 401(k)
- Brokerage investing and extra payments on debt under 4%
Notice that the car loan doesn't just come after the card. At 7.4% it comes after a full emergency fund and retirement savings too. See the full order, step by step.
When the answer changes
- No emergency fund yet. Without a small cushion, the next surprise bill tends to land right back on the card. Build the starter emergency fund first.
- Leaving an employer match unclaimed. Contributing enough to get the full 401(k) match comes before extra debt payments.
- A 0% promotional rate. If the card is on a 0% intro APR, compare the rates you're actually paying right now, and plan around the date the promo ends.
- Prepayment penalties. Some loans charge a fee for paying early. Check your loan terms before sending extra.
Common questions
Does paying extra on a car loan lower the monthly payment?
No. Paying ahead shortens the loan and cuts the total interest, but the monthly payment stays the same until it's paid off. That's one more reason not to rush a 7.4% loan while a higher-rate card is open.
Should I pay off debt before investing?
For debt over 8%, yes, once you have a starter emergency fund and your full employer match. Debt at 4–8% comes after a full emergency fund, an HSA and a Roth IRA. Under 4%, investing usually comes out ahead.
What if I already send extra to the car loan?
Drop the car loan back to its minimum and send the difference to the card. In the planner, enter what you pay now in "Amount you pay now" and it will flag the extra payment and tell you where it does more good.
Educational only, not financial advice. These are general rules of thumb with hypothetical numbers, not advice for your situation. JANE Wealth Management is not a licensed financial advisor.