Our HELOC

Our HELOC

I know I don’t include my debt when it comes to figuring out my net worth, and I think my reasons for that are still valid. However by not tracking it on my blog, it is not on the forefront of my mind every day and well I don’t get to hear people’s opinions on my entire financial picture. Anyway part of the reason for not including my Mortgage/HELOC was because they were “cheap” debt that I did not need to worry about and that the focus of this blog was getting me to retirement and I did not see my mortgage debt or student loans getting in my way. They would just slowly get paid off over the next 30 years so when it came to retirement they would no longer exist.

Well two things have happened since I started my blog. One, I am really starting to contemplate what I need to do to retire early. Retiring early would mean that my mortgage/student loans/etc would actually still be around and I would have to make payments on them. Second, my HELOC which started out being “good debt” @ 5.75% has slowly wandered into the area of “bad debt” @ 8%. I know how disasterous “bad debt” can be to a person’s financial standing and well I have always been a very strong proponent of not having “any debt”, although in recent years I have learned that certain types of debt are actually good for your financial standing. Well this HELOC is getting too close for comfort now, and I have decided that I want to kill it.

Some might argue that 8% being tax deductable is not necessarily “bad debt”, but my tax rate is so low that really I am still 7% or more on it and well I don’t think at least given todays markets that I can get a guarenteed 7% return on my investment to justify keeping the HELOC debt. Just recently I wrote an article that explained the process I went through to decide that keeping my money in a high yield savings account was dumb seeing as how I had this HELOC debt and since then I have at least temporarily reduced my HELOC from $16,000 to $9,650 just by moving money from my ING account to my HELOC.

Well I just cashed in a bunch of savings bonds I’ve had since I was a little kid and will be putting that money towards my HELOC. Same with any extra money I come across will be going to pay off our HELOC. One nice thing about the HELOC (if your are disciplined) is that you don’t have to worry about going overboard and paying off more than you can afford, because if you ever do get in a bind you can pull the money back out by writing a check from your HELOC. This allows you to go pretty all out when it comes to paying it off.

So in addition to temporarily housing my 2007 Roth IRA contributions for my wife and I in our HELOC vs ING, I will be looking at other ways to pay down this “bad enough for me debt”.

I have considered a temporary solution like doing a 0% Balance Transfer, which will buy me about an additional 12 months to get to the problem, but I want to come up with a plan to eliminate this debt as soon as possible.

Seeing as how I have never had credit card debt, I kind of feel left out when I hear some of the amazing stories being told in the PF community about people overcoming mountains of high interest credit card debt. I guess this will be my little HELOC hill that I will have to overcome. I’m going to add a little meeter to the sidebar to track my progress on this front and will keep you updated as I make progress on this front. Also just like the $100,000 by age 30 goal I will most likely do some further analysis and come up with a timeline and gameplan for eliminating this debt.

Wish me luck.

[tags]HELOC, Debt[/tags]

  • I need to learn more about HELOCs and real estate. It’s a project of mine. Btw, my goal for $1 mill is the age of 45. 🙂

  • My Financial Journey

    Heh I think I’m eyeing up $1 million by age 40-45. I really want to shoot for the 40 end of the spectrum, but need to do the math yet to see if its even feasible.

    As far as HELOC and real estate I didnt know much of anything until I bought my house and get my bill each month 🙂

  • Tim

    You might want to consider moving some of the HELOC debt to one of the “for life of loan” credit card balance transfer deals. I did this with a “0% for life” Discovercard deal that was around about a year ago. I’ve seen 1.99% and 2.99% for life deals in my mailbox recently.

    The key is to transfer and not use the card for anything else! (The Discovercard deal requires 2 purchases per month to maintain the rate. I buy couple $0.25 breakfast bars each month to meet that requirment.)

    Anyway, if you’re vigilant about your finances (sounds like you are) this can be a great way to slash interest costs. Oh yeah…there are BT fees of 2-3% usually capped at $75…still a good deal though.

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