Pay off heloc or keep on savings

**bjl584** · 10-02-2012, 08:05 AM

If you paid off the heloc now it would completely wipe out your cash holdings. I may wait until you have enough cash saved that your account represents 6 months' worth of expenses AND the ability to pay off the heloc.

But, that all depends on how long you plan on staying in the house. If you are planning on selling soon, then I may not pay it off at all. It may be better to just sell and walk away with no equity.

**dontgopoor** · 10-02-2012, 08:44 AM

Originally posted by JWhite View Post

This may be a no brainer but I am having trouble deciding. I have a heloc with an eye popping 127k. I make 200k a year and save about 90k a year. I have 120k in an emergency fund, own my car, no credit card debt and have130k in retirement401k. I owe 320k on the house and its worth 350k. My work industry is somewhat unpredictable and it would take me a long time to get employed again if I lost my job so that is why I save a lot. Big question is do I stop saving now that I have a ok emergency fund or do I take all my savings going forward this year and pay the heloc monster off?

So if you're annual expenses total $110 (200k-90k) and you have $120k in savings/EF, you have a about 7 months of savings.

I'd pay off the HELOC - you did not provide the int rate but I'm guessing it's not ultra low - especially if you can still tap the HELOC as you pay it down.

**BMEPhDinCO** · 10-02-2012, 09:23 AM

So you are underwater - if you owe $127 + $320 and the house is only worth $350. In that case, I would pay down the HELCO for sure, keeping the 6 months in the EF (in your case, around $60k).

Then I would pay down the HELCO with the rest of the savings for the year until you hit $0. That should take you around 9 months. After that, spend more time re-bulking up to 1 year for your savings (which should take you the last 3 months, plus 2 more).

I would also suggest seeing if you can knock your spending down a bit - right now you are at around 9k per month, can you bring that down a bit? It would help if you could get to around 6-7k as you would then have a better position if you are worried about job loss. The remainder could then go to savings (until you hit 1 year, which would then be around $84k) and then to the house to bring that down some (at least to 20% equitably).

Good luck.

**Slug** · 10-04-2012, 10:19 AM

I would be reticent to attack the EF you just worked hard to build. I am assuming the HELOC has a variable interest rate that is probably rock bottom right now. Personally, I would continue to build the EF a few hundred bucks a month just so you stay invested in growing it. The rest I would put towards the HELOC. Even if you take your time doing this, you're still going to end up paying the whole thing off well before rates start to rise again.

Congrats on your tremendous savings BTW.

**Floridaoranges** · 10-16-2012, 03:01 AM

Good question

I am glad you asked this question as I am in a similar situation. Nobody is mentioning the tax impact or the thought that the bank might freeze your HELOC at any time. It sounded to me like you were planning to keep your savings (which seems good to me, but what do I know?) and then start paying off the HELOC.

If someone could comment on the tax implications and also the HELOC freeze issue, that would be great.

PS- congrats on your disciplined savings. Also people did not consider that you are also paying out 50K per year or so in income taxes which can't be saved or spent by you.

**TBH** · 10-16-2012, 05:32 AM

I like the idea of hitting pause on your emergency fund for now and throwing money at the HELOC. Correct me if I'm wrong, but your required minimum payments on the HELOC will go down if you pay the balance down, so a lower principal balance will put you in a better position in case of job loss.

Other thoughts:

* If you are truly worried about job loss, I think the previous poster who talked about reducing your living expenses has a good point. I would even say you don't have to get too drastic right now, but draw up a plan in case you lose your job so you can reduce expenses quickly to make your E fund last longer.

* I'm sure you've thought of this, but it's worth saying--even as you're paying down the HELOC aggressively, keep adding to your retirement. You have a nice 401k balance, but depending on your age, you may still be behind on that. After you get the HELOC paid off, or paid down, you might want to start saving in an after-tax investment account to boost your retirement numbers a little.

Good luck.

Pay off heloc or keep on savings