$7000 question?? confusing...

[Enuff2Eat]

hi all, i got a chunk of money fall out of "the sky". yes, $7000 cold dollars from my family. would you advice me of what to do.

i got a debt of $90,000.00 at 5.25% on my home equity line that used to buy a condo for rental and another $35,000 of credit card at 0% expired in 6 months.

should i hold on to this money in a saving account for emergency or use it to pay the home equity credit line down?

the interest in my heloc is tax right off.

please advice. thansk

enuff

 

[retire@40]

If you will have the money to pay off the credit card in 6 months, then use it to pay down the HELOC. If not, and the net interest rate on the credit cards will be higher than the net interest rate on the HELOC, then pay down the credit cards. IOW, pay down the loan that has the higher net interest expense.

 

[KB]

Do you have any emergency savings?

If not, I would keep some of the money available in a Money Market account. Then pay as retire@40 suggested.

 

[peggy]

I agree with R@40, except:

If you do NOT have any emergency savings at all right now, I'd suggest you keep $1000 aside to start a "baby" emergency fund, a la Dave Ramsey.

On preview, I agree with KB.

 

[Enuff2Eat]

thanks guys, i don't really have the emergency funds but isn't it the point of having heloc? i can always write a check using heloc anytime anyday and pay 5.25% and tax write off too.

when my credit card ran out. i often pay it up using my heloc. it just this 7k is mine to do what i want. not someone else money.

 

[Outtahere]

it just this 7k is mine to do what i want. not someone else money.

As long as you owe the credit card company or the bank for your HELOC that money isn't yours. If you don't think you need the emergency fund then pay down the CC with the 7k and save yourself some non tax deductable interest.

 

[Jay_Gatsby]

I hate to say this, but it sounds like the OP doesn't have the money to pay his $35k credit card debt, nor does he have an emergency fund.  Rather, he's relying solely on his HELOC for his emergency needs and to pay his credit card.  Please correct me if I'm wrong.  Otherwise, the OP is in deep financial doo-doo.

 

[retire@40]

I hate to say this, but it sounds like the OP doesn't have the money to pay his $35k credit card debt, nor does he have an emergency fund.  Rather, he's relying solely on his HELOC for his emergency needs and to pay his credit card.  Please correct me if I'm wrong.  Otherwise, the OP is in deep financial doo-doo.

Sounds like you are right. The $7K should go into a money market emergency fund. If I were in his situation, I wouldn't be able to sleep at night. It may be time for the OP to ask for a raise AND get a second job.

 

[KB]

I agree with you two.

And Enuff2Eat.....Not 100% of the interest is deductible so it's still costing you some money to have the HELOC.
As you can see, many of us do not like debt on this board. And anything that costs you out of pocket, is debt.

 

[Mountain_Mike]

If you haven't done so already, I would open a Roth IRA with the maximum amount that you can dump in there. I'd then take the rest of the cash and pay any credit card bills. Finally, I'd reserve about $500 for a fun weekend or a nice toy.

 

[Enuff2Eat]

thanks again for the advice. it's true that the 7k is mine. yes, i do take alot of chances taking 0% credit card offer to pay down my heloc and then when the time expired i pay it off with the heloc.

can someone tell me if there is anything wrong with that picture? heloc 5.25% and creditcard 0% for upto 1 year. no brainer?

but i do agree that i ought to keep it in saving just in case. something happen...

"financial trouble"?? i don't think so. we're not rich but we do know how to live way below our mean... marconori and chesse are just the kids favorite food so we are ok.

 

[Jay_Gatsby]

thanks again for the advice. it's true that the 7k is mine. yes, i do take alot of chances taking 0% credit card offer to pay down my heloc and then when the time expired i pay it off with the heloc.

can someone tell me if there is anything wrong with that picture? heloc 5.25% and creditcard 0% for upto 1 year. no brainer?

but i do agree that i ought to keep it in saving just in case. something happen...

"financial trouble"?? i don't think so. we're not rich but we do know how to live way below our mean... marconori and chesse are just the kids favorite food so we are ok.

Sounds like we have another John Galt on our hands vis-a-vis use of 0% credit cards to finance safe investments, etc... Based on the above post, it appears that Enuff2Eat is simply using the credit card company's money to pay down his HELOC, and then borrowing money against his HELOC when the credit card company requires repayment. The advantage appears to be that Enuff2Eat is essentially avoiding the 5.25% interest rate on his HELOC -- without ever really paying back anything. While this sounds like a nice arrangement, I wonder what affect it's having on Enuff2Eat's credit rating.

 

[SteveR]

Sounds like we have another John Galt on our hands vis-a-vis use of 0% credit cards to finance safe investments, etc...  Based on the above post, it appears that Enuff2Eat is simply using the credit card company's money to pay down his HELOC, and then borrowing money against his HELOC when the credit card company requires repayment.  The advantage appears to be that Enuff2Eat is essentially avoiding the 5.25% interest rate on his HELOC -- without ever really paying back anything.  While this sounds like a nice arrangement, I wonder what affect it's having on Enuff2Eat's credit rating.

I also wonder what the advantage would be of swapping money back and forth while paying 5.25% on the HELOC and coming out with what on the other end of this cycle?

As near as I can tell, what JG does is to cycle the cash into accounts that MAKE money while here the poster is only swapping $$ in a circle and is PAYING money to do it.

 

[maddythebeagle]

I dont think this is an uncommon stratey by folks (bouncing a heloc and cc back and forth). I know 1 guy that bounces it back and forth on a monthly basis. Some people have to have a hobby Interesting way to avoid interest expense.

 

[justin]

I also wonder what the advantage would be of swapping money back and forth while paying 5.25% on the HELOC and coming out with what on the other end of this cycle?

As near as I can tell, what JG does is to cycle the cash into accounts that MAKE money while here the poster is only swapping $$ in a circle and is PAYING money to do it.

Well, the OP owes the debt to somebody. His options are to pay 5.25% on the HELOC, or 0% on the CC for the 6 mo or 1 yr period. Over that 1 year, he'll avoid $1800 in interest payments on the HELOC by using the 0% CC offer. That's a nice bit of change for a minimal amount of work.

I also do this same deal for a small amount to save money on my mortgage. The CC rate is 2.99% fixed forever, vs. a 3.75% ARM rate that will probably go up 1% every other year.

 

[retire@40]

Sounds like we have another John Galt on our hands vis-a-vis use of 0% credit cards to finance safe investments, etc...  Based on the above post, it appears that Enuff2Eat is simply using the credit card company's money to pay down his HELOC, and then borrowing money against his HELOC when the credit card company requires repayment.  The advantage appears to be that Enuff2Eat is essentially avoiding the 5.25% interest rate on his HELOC -- without ever really paying back anything.  While this sounds like a nice arrangement, I wonder what affect it's having on Enuff2Eat's credit rating.

That's all fine and dandy, but my concern would be that he has no emergency fund (and probably no retirement accounts either).

Macaroni and cheese is a good meal when you want it, but I wouldn't want to be forced into eating it on a day I'd rather have a filet mignon.

 

[Jay_Gatsby]

Well, the OP owes the debt to somebody.  His options are to pay 5.25% on the HELOC, or 0% on the CC for the 6 mo or 1 yr period.  Over that 1 year, he'll avoid $1800 in interest payments on the HELOC by using the 0% CC offer.  That's a nice bit of change for a minimal amount of work. 

I also do this same deal for a small amount to save money on my mortgage.  The CC rate is 2.99% fixed forever, vs. a 3.75% ARM rate that will probably go up 1% every other year. 

That's what I thought he was doing.  The only downside that I can see is the risk to his credit score.  I would think that the CC companies are wise to this scheme, and offer the 0% on a one-time basis.  That means the OP would need to apply for a new credit card every year and cancel the old one.

 

[Enuff2Eat]

if it is true what justin said "saving of $1800 on interest" who cares what my credit score is... at least for a while. i do believe i can save quite a bit of money on interest ,not quite that much but at least $50-$100/month.

for that reason i am willing to spend the extra hour to ensure i make payment on time to void penalty and yes, i do have a 401k , it's not much but it's something. the last time i check itwas around $155k, and yes we maxed out the ira too.

marcoroni and cheese is not the only option. how about ramen noodle... just kidding.

 

[justin]

Enuff,

I'm doing the 0% CC offer deal now too. I figure my credit rating may decline a bit. I have no need for credit in the foreseeable future, and I can "fix" my credit (avail. credit to total credit ratio) simply by paying off the CC's. It may take a few months to clear off the credit reports.

I got $1800 savings for you by taking $35000 that you have on the zero percent CC and multiplying it by 5.25% interest - the amount you are avoiding paying on your HELOC. I thought you mentioned you had a 12 month 0% offer you were using.

 

[Mr._johngalt]

I hate to say this, but it sounds like the OP doesn't have the money to pay his $35k credit card debt, nor does he have an emergency fund.  Rather, he's relying solely on his HELOC for his emergency needs and to pay his credit card.  Please correct me if I'm wrong.  Otherwise, the OP is in deep financial doo-doo.

As long as you have unused credit quickly available (CCs and HELOC)
for example, you don't need any other "emergency funds" IMHO.
If you can get a big enough interest spread, like you borrow at
-0-% and collect 4%, it's pretty easy. When the "spread" shrinks
and you factor in taxes, it can get tricky. Some pretty basic
number crunching will usually suffice. One reason I have never had a HELOC is that I couldn't see a "slam dunk" no-risk/no effort
way to put the money to work. Just my 2 cents.

JG

 

[justin]

HELOC = large amounts of liquid cash. Costs almost nothing to access it. Reasonable interest rates. I don't have one, but I may get one just for the liquidity. It's easier (and usually cheaper!) to borrow from a HELOC (or a margin loan, in my case) for short-term liquidity than to sell assets to generate cash.

 

[Enuff2Eat]

JG

i agree with you about finding anything that can fit this "no risk/no effort" deal but i believe with the cc deal, it is as low as a risk/effort as i can get. (i guess, i am trying to convince myself that) and it works even nicer if you don't debt.

of course, just mine 2 cents theory..