All Current Debt By Paying It Off With The Low Interest HELOC?
Q: Here is my breakdown: HELOC $2600 (no time limit, $50 per month minimum payment) Credit Card $210 ($10 per month minimum payment) Spouse's Student Loan $8700 (years to go...$144 pr/mo) My Student Loan $9944 (years to go...$111 pr/mo) Car #1 Loan $10,200 (4.5 years to go, $201 pr/mo) Car #2 Loan $11,400 (2.5 years to go, $277 pr/mo) Total debt: Total monthly payments for all of the above debt is $733. I have Approximately $50,000 in equity in my home, and was wondering the following: Should I increase my HELOC maximum amount to $40,000 and then consolidate all current debt by paying it off with the low interest HELOC? I would like to sell my current home and buy a bigger home within 4 years, so I don't think this makes sense to consolidate because I would lose all of my equity for the new home. Thoughts?
A: You don't give all the details, so I am going to have to make some assumptions. I'll assume that your student loans are very low interest, perhaps in the 3% range. It doesn't make sense to re-fi them at a higher rate, so I'd leave them as-is and pay them off on schedule. The credit card bill is normally the one you want to re-fi since they are usually at 10% to 20%. But you have only a trivial amount of debt here, so simply pay it off and avoid the interest fees. Just get rid of it and don't worry about it any longer. Your H/E loan of $2600 is also a trivial amount. You should be able to knock that one off in a month or two if you put your mind to it. What remains are the car loans. I really hate to see people turn a short term debt into a long term debt. Put another way, it is dumb to pay for an item that lasts 4 years with a 15 or 30 year mortgage. What you end up