HELOC or Car Loan?

[Beccagold]

Hi everyone! I'm new here & have enjoyed reading some of the existing threads. I was wondering if you would mind sharing some advice with me?

I have a HELOC for $27k w/ a variable interest currently at 8.5%
I also have 2 car loans combined equaling about $36k at about 4.5%

I currently throw a little extra money towards all. However, I hate that the heloc is so high & can continue to vary. Would you try your best to pay off that first, or the car loans?

TIA!!!

[disneysteve]

I'd say that's a no-brainer. Not only is your HELOC at a higher rate now, it is a variable rate so it could go even higher. Even when you count in the tax deduction, the HELOC is still costing you a lot more than the car loans. Put all extra money toward the HELOC. Just pay the minimums on the car loans until the HELOC is done.

[Beccagold]

Thanks for the quick response, Steve!

I thought it was a no brainer, but my financial advisor was the one who suggested the car loans.

Not the first time I've disagreed with him!

[disneysteve]

Originally Posted by Beccagold

I thought it was a no brainer, but my financial advisor was the one who suggested the car loans.

What was his reasoning for that suggestion? If it had anything to do with keeping the deductible loan, you might want to seriously reevaluate your relationship with that advisor.

[PRICEPLUS]

I concur with Steve on this one.

[LuxLiving]

Here's how I'd do it....

i) keep reading at Saving Advice.com.

ii-preface) Fire advisor.

1) I'd get myself an emergency reserve of cash.

2) Pay off Heloc.

3) Pay off car loans.

4) Save to pay cash for next vehichles and anything else I want to purchase.

5) Go on a pay-as-I-go Cash Basis from here on out.

[Beccagold]

Thank you for all of the advice!

i) keep reading at Saving Advice.com.

I plan to...

ii-preface) Fire advisor.

He's my brother-in-law. More of a favor to my sister than anything else.

1) I'd get myself an emergency reserve of cash.

Already have 6 month ER, and other slush funds.

2) Pay off Heloc.

Working on it. Was part of my original mortgage that we just purchased last year.

3) Pay off car loans.

Working on it. Changed jobs, lost company car. Husband just wanted a new one.

4) Save to pay cash for next vehichles and anything else I want to purchase.

I have no credit card debt. Mortgage, car payments, and soon to be new student loans from DH going back to school.

5) Go on a pay-as-I-go Cash Basis from here on out.[/quote]

See response to number 4.

Thanks again for everyone's thoughts!

[ren]

What everyone else said -- HELOC first. While I don't know what type of ARM you have (i.e. what the rate is based upon), mortgage rates in general have been creeping up from the historic lows of the past few years. No offense to your BIL, but that's an awful big exposure to risk that you probably don't need. Throw all your extra money at it and just pay what you have to on your car notes.

You may want to check with your lender to make sure that you don't have to do anything special to get the additional payments applied to the principal. I know some lenders require seperate checks and others just assume any extra is meant for principal.

Another thing that might be worth looking into is if you can convert your HELOC into a HEL and get a fixed rate. One of my coworkers just did that. I think she said their rate would have gone up a little bit, but they paid a bit extra and ended up with a lower rate than their old HELOC had (a quarter percent lower, if I remember correctly). Again, with rates possibly going up, locking your current rate might not be a bad plan.

[Broken Arrow]

Heheh. I'm sorry, but I find it hilarious that your advisor is your brother-in-law.

Family is great and all, but it's not worth losing money like this.

[cschin4]

Heloc

[LivingAlmostLarge]

Do you have an EF lying around? If so throw it on the HELOC and pull it out again if needed. At 8.5% I'd do that.

[Beccagold]

Originally Posted by LivingAlmostLarge

Do you have an EF lying around? If so throw it on the HELOC and pull it out again if needed. At 8.5% I'd do that.

I can do that. Any downside to that I should be aware of?

[disneysteve]

Originally Posted by Beccagold

I can do that. Any downside to that I should be aware of?

By taking your 6-month EF and using it to repay a big chunk of your HELOC, you will save yourself a bunch of interest. That's a good thing. If you can avoid needing your EF funds until your HELOC is totally repaid, you would then be able to start rebuilding your EF. If an emergency were to arise, you could just draw on the HELOC again. Obviously, the point of an EF is so that you don't have to take on new debt if an emergency arises, but doing it this way would be a calculated risk that will definitely save you money in the short term and very possibly in the long term too.

You could hedge your bet by applying half of your EF to your HELOC and keeping the other half in place where it is. You would save some interest but still have some emergency money around that wouldn't cost you anything to access.

[LivingAlmostLarge]

Just depends on how much of a lifestyle change versus you'll run up the bill again too!

[smartatmoney]

I would use I would take my EF down to 2 months and put the rest towards the HELOC. Pay minimums on cars and go gangbusters on the HELOC to close it out. After that I would hit the car loans. After that get your EF back to 6 months.

Buy future cars as 2 year old used cars and pay cash. Never finance.

And yes, fire the adviser (or at least don't ask for his advice :-) )
-SAM