3 Month Emergency savings VS HELOC

[dxkj]

As was discussed in a Previous Thread My wife and I have various debts at the moment, none that are really a big deal, no CC debt, just Student Loans, Mortgage, and 2 Car payments. We have sufficient savings to pay off the 2nd car (17,800) but then we will have no emergency savings in case.... (fill in the blank). My job is fairly secure, Im well though of and respected, and part of a larger corporation that shouldnt be going anywhere soon. My wife is in grad school.


Should we deplete our emergency savings and rely on a HELOC if we have emergency needs, or should we keep our 6-9k in savings instead?

 

[DaveSimmons]

HELOC could be revoked or terms changed, I'd keep at least a couple of months in savings at ING. Just like your only poll choice before you fixed it 🙂

 

[Maetryx]

Interest on a savings account is taxed. So you don't even get the paltry pittance in total. On the other hand, paying off your loan is like investing in a financial instrument that is a guaranteed return on your investment of (insert car's interest rate here) tax free!

 

[dullard]

I was going to post a nice thoughtful post again. But then it hit me. If you are this concerned (two threads, plus bumps of old threads), just take the conservative route. You are only losing ~$20 a month by having the savings but you will have the peace of mind that you are protected from most emergencies.

 

[Muadib]

What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

 

[dxkj]

Originally posted by: dullard
I was going to post a nice thoughtful post again. But then it hit me. If you are this concerned (two threads, plus bumps of old threads), just take the conservative route. You are only losing ~$20 a month by having the savings but you will have the peace of mind that you are protected from most emergencies.

I only created this thread because I wanted direct responses to this debate.... I appreciate each and every thoughtful post that someone takes the time to construct 😉

 

[dxkj]

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

 

[Muadib]

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

 

[dxkj]

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

What is the point of paying off a loan to save interest if an emergency comes up and we end up paying twice the interest rate on a CC? is it basically just gambling?

 

[spidey07]

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

 

[desy]

A somewhat comparable scenario
Bottom line you save money.

He says to keep the savings but NOT an equal scenario cause you have still more debt you have to get rid of. Thats the key of the last paragraph is 'what will you do with the money you free up' You pay down more consumer debt of course.
You've shown you have the discpline.

 

[Muadib]

Originally posted by: spidey07

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

How so? It's not like he's using the cards now.

 

[dxkj]

Originally posted by: Muadib

Originally posted by: spidey07

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

How so? It's not like he's using the cards now.

Im assuming they mean what Im thinking about...


Something bad happens and I put 10k on my CC, at 18% interest... now im stuck getting screwed on interest that I have no easy means of paying back.

 

[necine]

Originally posted by: dxkj

Originally posted by: Muadib

Originally posted by: spidey07

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

How so? It's not like he's using the cards now.

Im assuming they mean what Im thinking about...


Something bad happens and I put 10k on my CC, at 18% interest... now im stuck getting screwed on interest that I have no easy means of paying back.

You could always get a bank loan right away and pay it right off.

 

[dxkj]

Originally posted by: necine

Originally posted by: dxkj

Originally posted by: Muadib

Originally posted by: spidey07

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

How so? It's not like he's using the cards now.

Im assuming they mean what Im thinking about...


Something bad happens and I put 10k on my CC, at 18% interest... now im stuck getting screwed on interest that I have no easy means of paying back.

You could always get a bank loan right away and pay it right off.

True, I guess the real question is, if we avoid financial trouble for 2 years, we will have that same savings built up anyway

 

[Muadib]

Originally posted by: necine

Originally posted by: dxkj

Originally posted by: Muadib

Originally posted by: spidey07

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

How so? It's not like he's using the cards now.

Im assuming they mean what Im thinking about...


Something bad happens and I put 10k on my CC, at 18% interest... now im stuck getting screwed on interest that I have no easy means of paying back.

You could always get a bank loan right away and pay it right off.

Exactly!!! He could get a home equity loan and be able to write it off.

On another note, 18%!!! Damn, your credit must suck.

 

[dxkj]

Originally posted by: Muadib

Originally posted by: necine

Originally posted by: dxkj

Originally posted by: Muadib

Originally posted by: spidey07

Originally posted by: Muadib

Originally posted by: dxkj

Originally posted by: Muadib
What are you trying to do? Lower your monthly payments or pay down debt? You might be better served putting the money toward your mortgage rather than your car payment.

Mortgage rate is 5.5% , Car payment is 6.25% (and by paying it down, that would be one less monthly payment, and money I could put towards retirement or savings, not to mention the saved interest.

It seems like a no brainer then, so what's the problem? If you have something unexpected, just use a credit card.

This is the kind of thinking that gets somebody in very deep financial problems.

Keep the savings.

How so? It's not like he's using the cards now.

Im assuming they mean what Im thinking about...


Something bad happens and I put 10k on my CC, at 18% interest... now im stuck getting screwed on interest that I have no easy means of paying back.

You could always get a bank loan right away and pay it right off.

Exactly!!! He could get a home equity loan and be to write it off.

On another note, 18%!!! Damn, your credit must suck.

The rate is actually 10% I think


Credit is 700+

 

[DaveSimmons]

How much equity do you actually have in the house? Wisconsin isn't a massive bubble area like California, but if something happened to change your house value you might need money just when your HELOC becomes unavailable.

Something you could do is put your "cash" into a reasonably safe stock-based investment (mutual fund). It will earn more than ING over time (but possibly less in any one year) and you can always sell the fund shares if you need to. It's also collateral that isn't part of your all-the-eggs-in-one-basket house.

Something like a non-retirement account at vanguard.com or scottrade, in vanguard's VFINX S&P500 index fund or the scottrade equivalent. Put $10K into VFINX and you have a good long-term investment for a real emergency or for early retirement. There is more risk than ING, but over many years there will be more reward.

(This is only if you can't stand just making 3.3% APY at ING. I keep several months expenses in low-APY savings myself since it's easy to get to.)

 

[dxkj]

Originally posted by: DaveSimmons
How much equity do you actually have in the house? Wisconsin isn't a massive bubble area like California, but if something happened to change your house value you might need money just when your HELOC becomes unavailable.

Something you could do is put your "cash" into a reasonably safe stock-based investment (mutual fund). It will earn more than ING over time (but possibly less in any one year) and you can always sell the fund shares if you need to. It's also collateral that isn't part of your all-the-eggs-in-one-basket house.

Something like a non-retirement account at vanguard.com or scottrade, in vanguard's VFINX S&P500 index fund or the scottrade equivalent. Put $10K into VFINX and you have a good long-term investment for a real emergency or for early retirement. There is more risk than ING, but over many years there will be more reward.

(This is only if you can't stand just making 3.3% APY at ING. I keep several months expenses in low-APY savings myself since it's easy to get to.)

14% equity about

Of our "emergency fund" 7k of it is in XOM stock with an ok dividend and until recently a good return.

 

[markgm]

Personally I'd pay off debt. You seem quite paranoid or nervous, so I'd say keep the savings and be able to fall asleep at night.

 

[dxkj]

Originally posted by: markgm
Personally I'd pay off debt. You seem quite paranoid or nervous, so I'd say keep the savings and be able to fall asleep at night.

Paranoid? Nervous? Hardly. I am doing research and getting peoples opinions. Am I trying to think of the worst case scenario? Sure, why not. It's better than being unprepared.

I take what spot I'm currently at, and what I'm leaning towards. I then ask opinions or new ideas that I may not have though of, and then apply those to my situation as I try to make a decision. Basically my job leaves me hours a day to spend thinking and researching on the internet, and I spend some of that time getting different views. Ive found these forums usually have a wide range, and I've more than occasionally been helped out.

Above all I don't want to put my wife and I in a bad position, while still maximizing our worth. Is saving x dollars by paying off a loan early worth doing if I may end up having to take out another loan for a higher rate later? That really just depends on the chances of that happening.... however the difference between having to take out 9k in HELOC at 6% vs taking out 9k on a CC at 10-15% , there is a big difference.

/shrug not paranoid, not overly worried, just anal 🙂