What would you do in this scenario?
Debt:
,500@3.99% – Home Equity Line of Credit
,800@4.75% – Student Loans
Liquid Assets
,000 – Savings
HELOC is a floating rate of course. But interest rates are not going to go up anytime soon. The student loans are fixed rate. Of course I’m earning nothing significant on savings. Would you pay off the HELOC, Student Loans, or just keep making payments. I’m leaning towards paying off the HELOC then chipping away at the student loans. I could throw about 00/mo towards that and have it paid off by the end of next year. So totally debt free by 2013. I’ve also been thinking about just piling on in savings then paying off lump sum. I feel like now I have a little security blanket with the money in savings so that’s why I am hesitant to make any big moves.
Tagged with: equity line of credit • heloc • home equity line • home equity line of credit • interest rates • liquid assets • lump sum • money • security blanket • student loans
Filed under: Fixed Home Equity Loan
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pay off your student loans and keep the rest of the money as your emergency fund. Then concentrate on paying off the HELOC. with your earnings.
I would pay of the student loans immediately. That leaves $7,000 in liquid assets.
Then I would pay $6,000 against the HELOC. The leaves $1000 for emergencies and $17,500 on the HELOC.
Next, dump EVERY available penny on the HELOC until it is GONE.
Finally, increase the emergency fund to at least 3 to 6 months of expenses.
NOTE: I chose the order based on the SIZE of the loans, not the interest rate. Your HELOC rate WILL increase, and more likely sooner than later.
Also note: you math is wrong. $22,000 + $1,200 for 13 months = $37,600. You list $37,300 debt WITHOUT accounting for interest.
I would not recommend piling money in savings to pay off something lump sum later – you’ll be racking up interest on those debts along the way which will cost you more in the end. Leave enough in savings so you feel comfortable – $1,000 is the minimum I’ve heard, but you may want to keep more if you are not sure of job stability. The two popular methodologies to decide which debt to pay are lowest balance and highest interest rate – right now that’s the student loan. But you’ll also want to consider the monthly payment. You have enough in savings to pay off the student loan completely and free up that extra money to go toward the HELOC each month. Linked below is a free excel template where you can run scenarios of which one to pay off first and see the final payment dates and how much you’ll pay in total with each scenario. There are lots of template online, but I like this one because the second tab allows you to make one-time extra payments and see how that impacts your debt as well.