When we bought our house in January 2003, we got a 30 year mortgage at 6% interest for $152,000 (the balance on that one just dropped below $140,000 – yay!) We had $10,000 for a down payment, which was far less than the traditional 20% (our house cost $190,000). At the time, we were stoked – $10,000 is still a lot of money for us, and most of our friends were buying with no money down. But being $28,500 short of a 20% down payment meant that we had to get a home equity loan for $28,500. The interest rate was about 4% originally, but has doubled over the last few years, and now stands at 8.35%.
The HELOC is tied to our checking account, and we move money back and forth to it all the time. When we get paid, the money goes first to the HELOC until it’s needed for bills. So that reduces our monthly interest payment for the HELOC, but we still pay nearly $200/month in interest on that loan. Having it tied to our checking account has been nice in some ways, but the downside is that we just view it as a money storage account, and we’ve never actually paid it down. The money that we put into it each month invariably comes back out again. The end result is that balance in that account is only a few hundred dollars lower than it was when we got the loan. Now that we’ve paid off almost all of our non-mortgage debts (the only one left is our Discover Card), we need to take a hard look at the HELOC. 8.35% is not a terrible interest rate, especially compared with credit cards, but it’s still pretty high when you owe more than $28,000. The bank is happy to have us keep using the account as our short-term savings account, since they’re getting $2300/year (!) in interest from us. But this has got to stop.
So the plan is to decrease the amount we owe on the HELOC by at least $200/month right now. We will bump that up to $400/month once we have the Discover Card paid off and the balance in our HSA up to $3000 (currently stands at $607). We will make the HELOC a priority. We will continue our contributions to our retirement accounts at the same level we do now, but we will not ramp up savings in any other area until the HELOC is under control. I’m still going to use the HELOC as a place to store the money to pay our main mortgage and our credit card bill each month, but I will keep track of what I’m putting in, and make sure that the amount I take out is at least $200 less than what we put in. Right now, the HELOC balance is $28,209. By the end of May, it will be under $28,000 (and will hopefully never get above $28k again!). My husband and I have often talked about this, but I feel like putting the goal out there on my blog will make us work harder towards the goal. I sure don’t want to have to get on here next month and say that the balance in the HELOC is still over $28k!