Should I pay down my home equity loan or pay off credit cards?
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Hi. My home equity loan is an interest only adjustable and I am currently paying something like 7.02 (I have a rate of 1.25 below prime). I also have credit card debt on two cards, but they are fixed at 4.02 and 4.99. I know its usually better to not have the credit card debt, but since the rates are fixed and lower than my heloc, should I work on paying the heloc off first (I owe twice as much on my heloc as I do on my credit cards). Thanks.
Should I pay down my home equity loan or pay off credit cards?Let's take a look at the rates after taxes as interest on the HELOC is tax deductible:
This assumes you are in the 25% bracket.
HELOC = 7.02%
Tax Benefit = 1.76%
After Tax Effective Rate = 5.26%
Credit Cards = 4.02% and 4.99%
Tax Benefit = %0
After Tax Effective Rate = 4.02% and 4.99%
These are the rates you should be comparing. Even with tax benefit factored in, you are still paying more for the HELOC but the rates are very close. Bottom line, pay off what you are most comforable paying off. Personally, I would pay off the credit card with the lowest balance first ......but that is just me.......
Should I pay down my home equity loan or pay off credit cards?I would pay off the helocsince it is tied to your home credit card debt is usually unsecured and in case you lose job and can not pay do not want your home in jeopardy
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