Home Equity Loan or Mutual Funds to Pay Off Debt

[Anonymous]

We have accrued approximately $10,000 of cc debt from some unexpected home repairs. We have been paying the monthly balance in its entirety so as to avoid interest, but the payments are killing us. We recently received $5,000 as a gift, and I have $8,000 in mutual funds which I could cash out without paying taxes (due to major losses a few years back). Other than that, we have ZERO savings. Without the cc debt, we could save about $500 a month. We have also considered getting a home equity loan (if we'd even qualify for enough to cover the debt, due to appraisal values in our neighborhood). What makes the most sense financially? We have never had any debt aside from a mortgage, so I just feel so ignorant on the best pathway out of this.

[Anonymous]

Anyone have thoughts on this?

[Anonymous]

You should have at least 3-6 months of expenses in liquid savings (not a mutual fund) before you pay off debt. How close does the 5K get you to that? I would put the 5K in liquid savings first. After that it would depend on the interest rate you are paying on the CC debt. I wouldn't necessarily liquidate a high-performing mutual fund to pay off low-interest debt, but I'd do the reverse.

[Anonymous]

Anonymous wrote:You should have at least 3-6 months of expenses in liquid savings (not a mutual fund) before you pay off debt. How close does the 5K get you to that? I would put the 5K in liquid savings first. After that it would depend on the interest rate you are paying on the CC debt. I wouldn't necessarily liquidate a high-performing mutual fund to pay off low-interest debt, but I'd do the reverse.

PP again - oh and don't get a home equity loan, it's just more debt. Get really lean on spending, read Dave Ramsay if you need inspiration.

[Anonymous]

using a home equity loan to pay off CC debt is a bad idea IMO unless you're not going to continue to take on more CC debt on top of the home eq. loan ...

pay it off with available cash and then keep going with savings at the same rate you were paying off CCs etc., to build up savings.

[Anonymous]

But the HELOC is deductible so wouldn't that ,are it a better choice?

[Anonymous]

I would pay off the debt from what you have on hand.

[Anonymous]

Can you transfer some or all of it to a low interest credit card?
How old are you? kids? monthly income? how long do you think you'll live in your house?
No IRAs or 401k?
Pay off $8000 with the mutual funds and try to get a low interest rate card for the rest. Then you should be able to pay it off in 4 months and you'll see the light at the end of the tunnel.

[scottstev2910]

Anonymous wrote:But the HELOC is deductible so wouldn't that ,are it a better choice?

But it becomes a secured loan. So you'll anchor a major asset to the debt while CC debt is unsecured.

[Anonymous]

Anonymous wrote:You should have at least 3-6 months of expenses in liquid savings (not a mutual fund) before you pay off debt. How close does the 5K get you to that? I would put the 5K in liquid savings first. After that it would depend on the interest rate you are paying on the CC debt. I wouldn't necessarily liquidate a high-performing mutual fund to pay off low-interest debt, but I'd do the reverse.

I think it would be madness to have 6 months of expenses saved while you have 10k in credit card debt.

I would keep one or two thousand in cash and use the rest to pay off your credit card debt. I would not cash out the mutual fund. I would cut expenses to the bare bones until I had paid the rest off.

[Anonymous]

OP here. Thanks for all the replies. Now that my husband and myself are now furloughed, we have decided to apply for a $15,000 home equity loan, which would end up costing us roughly $270/moth over 60 months (which is MUCH more manageable than the entire monthly cc bill). With no savings, we can't afford to throw the entire 5k at cc debt. And I would prefer not to liquidate the mutual funds. Sigh...we'll see if we even qualify for the loan.