Friday, January 9, 2009

Absurd Advice?

Well actually it is quite good. Just the HELOC lover in us does not like it. The part of us that wants to to have our cake and eat it too. That knows what we want and wants it know so we will use our equity to get it. And well though out too - Hello Velshi and CNN because this is how it is done.

So what advice are we raving about this morning? We came across some advice from Manisha Thakor - whose book is On My Own Two Feet. The advice was part of a question-answer program on PBS Now titled Credit Cards: You Asked We Answered. Lets take a look -

Question: I'm carrying a $6,000 balance on a home equity line credit card, the interest rate is variable and currently at 3.35%. I only have to pay an interest-only payment each month which is around $15. My wife and I pay $1,000 a month on our mortgage, $650 on a leased vehicle, and $300 on a financed vehicle. We have a healthy combined savings but I'm concerned we might need to use it this year. Should I pay off the $6,000 balance or make the payments I've been making and keep a higher balance in our savings account in case we need it?

MT: Pay off half the balance right now. You are paying at least 3.35% for that loan and probably earning next to nothing in your savings account. By paying off half right now, you will reduce your debt while still retaining a bit of a cash cushion. You are very smart to want to make sure you have a savings cushion given the tough times we are in. However, the first thing that jumps out at me as I read your question is the amount you all are spending each month on transportation. To have a "balanced" financial pie you typically want to spend no more than 10% of your monthly gross income on your total transportation costs. It sounds like some paring back in that department is in order. But to answer your primary question, when your financed vehicle is paid for, I'd suggest taking that $300 a month you were spending there and allocating it all to paying down that home equity line of credit (HELOC). There's no better feeling than being HELOC free!

HELOC Free? HELOC FREE??? Now there is a thought. Can it really feel better than HELOC Heaven??? Probably...

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