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    HELOC or EF

    Ok so my family has been as frugal as possible and paid off a little more than 30k in 2008. The only remaining debt is the mortgage, and 19k on a HELOC.

    We have $1000 in savings. The current ir for the HELOC is 7.75% and is variable. We have cut back everything, and we can contribute $1600 a month to either the HELOC, savings, or both. The $1600 does not include the $140 minimum payment. If I put all money towards the HELOC then it will be paid off in DEC.

    We both have steady jobs, and I have no reason to think that anything will happen to income, but you really cant tell in these times. My fear is that an emergency will happen before the EF can begin to be funded, and we will have to tap into credit to survive.

    I have been on these boards long enough to know that the smart answer is to pay off the debt, then go for the EF, but I guess I am just looking for reinforcement.

    Thanks in advance.

    Jon

    #2
    IMO, if those really are the only debts left (no car loans, credit card balance, student loans, etc), then I would split between savings and HELOC, probably favoring the HELOC in percentage. Maybe you pay it off a few months later, but you get the peace of mind of a growing EF.

    I have personally adopted the philosphy of paying myself first every month; ie I pay into my EF. I know some of the "numbers" guys might disagree, particulary if interest-accruing debt is still there (why save at 3.5% if your debt interest is 5%?), but I like the peace of mind. I do not want to rely on a CC/personal loan if I suddenly need a couple grand for a major house/car/health issue. I'm still paying off debt at a high rate anyway.

    It might be different if you had a bunch of debt, but you are in good shape it sounds like. Get that EF going, even if it is only $100 a month towards that and $1500 towards HELOC.
    Last edited by Bimmer; 02-07-2009, 07:57 PM.

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      #3
      The assumption is correct. I have no other debt besides the Mortgage, and the HELOC. I was thinking of a split as you mentioned.

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        #4
        Without a meaningful EF, you are very vulnerable to going back into serious high interest debt.

        Build your EF at the expense of the HELOC. Then start to pay that down once your EF is adequate.

        In this economy everyone is vulnerable - you may not even know until it's too late.

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          #5
          I also agree with splitting.

          I would probably go 1k towards EF 600 towards HELOC until EF is 3 months expenses then switch to 500 EF 1100 HELOC

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            #6
            If you split 400-1200, would that give you peace of mind? Its OK to pay off the HELOC lump sum.

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              #7
              That is great your incomes are stable. Not many of us can say that.

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                #8
                I know how lucky i am with a steady income, but that is why I asked the question in the post, because I realize that my situation can change at any time.

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                  #9
                  I would certainly want to have an amount in the EF that I'd feel comfortable with for most emergencies. HELOC's are "good" debt IMO and should take a backseat priority wise to fully funding an EF. I've had to do some emergency spending in the last few months and was sure glad to have a savings cushion in place.
                  "Those who can't remember the past are condemmed to repeat it".- George Santayana.

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                    #10
                    I would do a 3 month emergency fund since you feel that your job are fairly secure today.

                    Once you get the 3 month emergency fund done and then focus on paying off the HELOC

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                      #11
                      For peace of mind I would want more in the EF than start on the Heloc. If its adjustable it should be adjusting down this yr

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