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What to pay down

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  • What to pay down

    I am one year into practice and am looking to continue to pay down debt. Debating further paying down student loans vs HELOC that we took out when we purchased our house one year ago. Mortgage was 10% down and then fixed thirty year plus HELOC. Salary, will prob make around 700K this year.

    Mortgage 370k at 4.3% 30yr

    HELOC 47k at 5.5% Variable

    Student Loans 130k @3.5% fixed, down from 260K at the beginning of the year

    No auto or credit card debt

    Maxing 403b/457 and IRA 56K

    Cash: 95K

    Mortgage isn't the best but didn't start with WCI until after this was done. Have considered paying off the HELOC and re financing to a 15yr loan @ 3.635% but truthfully not sure how long we will stay in this house. Would like to keep a 6mo emergency fund liquid which would be about 42K and use the rest to pay off debt. Live in a state with 100K homestead so if I put it into equity would be credit protected unless housing tanks which is a possibility. Appreciate your input.

  • #2
    I'd make that HELOC disappear first, and rather quickly. 5.5 % guaranteed return in this market is pretty good IMO. You have the cash and look like you're in pretty good shape overall. Run the numbers to see if refinancing the mortgage makes sense if you're thinking of staying put for 3-5 years.


    • #3
      Being the arbitrator of taxes/rates that I tend to be...I would run those numbers to see where you get the best tax return/benefit. For example, you could take even more HELOC out and put it all into your student loans and then essentially be able to write off your student loan interest while transferring a bad debt option wise to better one. Just shuffle it around to more advantaged status is all, dont actually take out more debt of course.

      Honestly, as long as you dont blow it or totally discount taxes, youll have this knocked out in no time with your income.


      • #4
        You can retire the HELOC immediately with cash, and the student loans in a matter of months with the income.  You will get no deduction on the student loan interest because you make way, way too much.  My condolences.   


        Keep the mortgage as long as you feel comfortable having debt; odds are you'll come out ahead in the long run by using that debt as leverage to have more $ invested.   I made it a priority to be debt-free by 40 and paid mine off a year ago.  Do what works for you.



        • #5
          Thats what Im saying. You dont get a deduction for student loans but you do for mortgage and HELOC. So if the money is exactly the same, it makes tax sense to "use" HELOC to pay off the student loans and pay down the heloc with income but in a tax deductible manner. Its all the same, just some form of payments are better than others. We didnt make the rules but you can sure use them to your advantage.


          • #6
            You make so much that priority won't really matter one way or another. Max out all tax deferred accounts, even consider 529s for yourself if you have no kids. Others might disagree, but I don't see the point in holding more than 50k in cash at that income level while holding debts. You earn it so quick and pay checks are usually delayed two weeks that you could go cold turkey on paying debts for one month and have replinished your cash reserves.


            • #7
              Agree with Arky.  With your income your goal should be:

              1. Do not buy another more expensive house

              2. keep other expenses under control

              3. pay off everything else easily within a year

              Shouldn't be overly difficult or require much analysis!  I would not take out more HELOC to get a small deduction in order to pay off the student loans.  You should be able to pay off both easily.  At those rates I would be paying everything rather than trying to invest in taxable for instance..



              • #8
                $700k..... I'm in the wrong specialty.  If you really want the debt gone quickly you can certainly live "comfortably" on what would be my full salary and still your debt off in <5 yrs.