By JLP | October 19, 2006
A good reader of this blog sent me the following email:
I’ve been reading your web page for a couple of months. I have a personal finance question that’s been running through my mind. Any chance of you posting it / answering it / opening it up for responses?
I have a fixed (6.150%) equity loan, current balance $73K and a HELOC (8.250%), current balance $15K. There are no prepayment penalties.
I make the mortgage payments each month and have about $1,000 extra each month that I’ve been splitting (not always evenly) between the 2 notes.
Which would be the best use of the extra $1000? Should I funnel that money towards the high interest HELOC? Or should I put that money towards the fixed equity loan’s principle and lower the overall payoff?
I’m currently contributing over 10% to my 401K and funding my grandson’s 529 plan. I’m comfortable with these deductions and want to use the extra cash for mortgage payments.
He doesn’t specify whether or not he has an emergency fund but since he says he has an extra $1,000 per month, I’m going to assume that he does. That said, I would pay off the HELOC first since it has the highest interest rate. If you apply the entire $1,000 to that loan, it should be paid off within a year. Then, once that is paid off, go for the mortgage if your goal is to be totally debt free.
Now, what are your thoughts?