Ask Terry Questions Debt pay off

Debt pay off

By Terry Savage on April 28, 2019 |

Hi Terry
My is question is, which should I pay off first. My $50,000 HELCO – 1.99% interest only payments of $84.50 monthly for 1 year. Or my $51,082.88 mortgage balance – 6.375% – payments are $748.74 monthly. I do not have any credit card debt or car payments. The HELCO was a consolidation of credit cards and student loans. I make $46,883 a year at my job. I contribute 10% to a 457(b) and I have a Roth IRA with $644 sitting there in a target date fund doing nothing.
I appreciate your time.
Thank you

Terry Says

You’re doing a great job.  And you have a great goal.  Now, at first it seems you should pay the higher-rate debt first.  BUT, I think you should really do all you can to pay off that HELOC.  It’s attractive because it’s interest-only.  But sometime soon, likely within 5 years of the initial loan, the entire balance will come due!!  And rates could be higher by then.

If you pay down the HELOC you can refinance y our mortgage, because  your credit will be better — and if rates stay at this level your traditional mortgage rate will be lower than the one you have now.  Please write back and let me know when you’ve paid off the HELOC!

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