As of this afternoon when I deposit our paychecks for December, we will have paid off more than $1000 in principal on our HELOC. Doesn’t seem like much, but it’s a big deal for us. We’ve had our house for nearly five years, and this is the first time we’ve ever paid down the balance in the HELOC. We use it as a holding account where our paychecks go (which does reduce interest charges over the month). Then every month for the last five years, we’ve written checks on the HELOC to pay our main mortgage and our credit card balance. Combined with all the other debts we were paying off, there was never anything left over. And other things – our IRAs and our HSA – always took priority as far as savings. But now that we don’t have any debt other than the mortgage, we’re still able to contribute to our retirement plans and our HSA, and there’s some money left over in the HELOC each month. This will be the fourth month in a row with money left over, and the total has passed $1000. It feels great. I love looking at our online banking page and not seeing $37 as the amount of available credit in the HELOC.
For the last few months, we’ve been putting $700/month into our HSA, which is a big chunk of our monthly savings. We’re going to keep that up for several more months, since we know that we’re going to be forking out a lot of money from that account next year. My husband’s knee is going to use up $3000 (our deductible) in January, and we still owe our midwife $2650, which we’re scheduled to pay in January, February, and April. Right now, we have about $3500 in our HSA, so we still have a ways to go before we have all of the 2008 expenses covered. The nice thing about our health insurance is that our deductible is for the whole family, so once we pay it in January for the knee repair, any other medical expenses for my husband, myself, or the baby would be covered 100% for the rest of the year. I don’t anticipate anything else, but it’s nice to know that we won’t have to budget for it.
My goal is to cover the knee and the midwife by April, and then keep contributing in 2008 until we meet the IRS maximum – $5800 for a family. That way we’ll have a medical expense cushion going into 2009, when our deductible will reset.
Right now I’m trying to decide if I want to use that $1000 that we have paid towards our HELOC over the last few months and send it to our HSA instead. The maximum contribution in 2007 is $5650. We have contributed $3500 so far this year, and my plan was another $700 this month, putting our total at $4200. But I could take the $1000 that we have in our HELOC and put it in the HSA, bringing our total to $5200 for the year. Given that we know we’re going to use nearly $6000 from the HSA in 2008, this seems like a smart move. But I haven’t decided what I want to do yet. The HSA is invested in a mutual fund, which obviously isn’t setting any earnings records at the moment (it’s worth just over $3600, which I suppose is better than having a loss for the year). The HELOC has an interest rate of 8.03% which is tax deductible.
Part of me wants to keep the balance in the HELOC headed in the downward direction, and another part of me wants to get us as close as possible to maxing out our HSA this year. We’ll see which part wins. Maybe I’ll compromise and send an extra $500 to the HSA…