Ask The Readers: Cash Savings vs. Paying Down Loans

ASK THE READERS: CASH SAVINGS VS. PAYING DOWN LOANS

There was a good reply to my final Ask The Readers post: <a href="http://www.mymoneyblog.com/archives/2009/08/ask-the-readers-parents-losing-home-to-foreclosure.html”>Parents Losing Home To Foreclosure!, so here’s an additional engaging subject from a single reader who’d similar to a submit from alternative readers (yes, you!). It a movement of a aged saving vs. profitable down debt debate:

My mother as good as we were carrying a discuss about assets as it relates to a home equity line of credit (HELOC). She has been brought up underneath a mantra of “always have during slightest 3 months of assets available,” which is excellent by me, given I’ve regularly been a saver. Prior to removing a HELOC, we saw eye to eye flattering well. Now which we have a HELOC with about a $20k change upon it, we no longer would similar to to put any of my additional supports in to a required “savings” account, yet would rsther than make use of it to compensate down a change upon a HELOC. To me, this is a diversion of seductiveness rates — a HELOC is during 3.99% as good as a assets comment is about 1%. I’m an IT man who likes to see things in black-and-white during your convenience possible, as good as this is a box of that. As such, I’m peaceful to keep a ZERO (or negligible) change in my assets comment as good as only send supports from a HELOC comment during your convenience we need money. I’m carrying a tough time offered her upon this idea, though.

As we see it, I’d rsther than have $0 in my assets comment as good as as well as $11k change upon my HELOC, since she’d rsther than have $9k in assets as good as a $20k change upon a HELOC. Even discounting a taxation advantages of a HELOC, it seems similar to a aloft seductiveness rate accrued upon a HELOC debt should overrule a low seductiveness upon savings. To me, it’s all a single pot of income with incompatible seductiveness rates. What’s your take? I’m certain this isn’t an odd circumstance.

The Liquidity Factor

This doesn’t but delay answer a question, yet we felt similar to a single blank care is liquidity. Are home values dwindling in your area? How most home equity do we now have? Unless it is a really tall number, we competence be in risk of carrying your HELOC solidified by your bank, which equates to we could be incompetent to steal any some-more income during 3.99%. Many banks have been we do this recently.

If we were in a $0 in assets as good as $11k change unfolding as good as indispensable $1,000 to repair a automobile or some-more for a little alternative emergency, what would we do but a HELOC? we am guessing which this is a incident which competence be concerned your spouse, it would be concerned me!