Thread: money question

I know you inspectors are not financial advisors but I think you're a smart bunch so here's a money question I would like your opinion about.

Consider a person has an equity line of credit where the interest is tax deductible. The balance is $10,000. With interest rates as low as they are it only costs $30 a month to hold this debt.

The person also has $10,000 cash on hand.

With banks failing and cutting off lines of credit and such, do you think it is a good move to just hold the cash instead of paying off the loan?

Point being, the loan could be paid off and it's still a revolving account and the money could be taken back if needed. That is unless, the bank closes the credit line due to a bad economy.

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Originally Posted by John Dirks Jr

I know you inspectors are not financial advisers but I think you're a smart bunch so here's a money question I would like your opinion about.

Consider a person has an equity line of credit where the interest is tax deductible. The balance is $10,000. With interest rates as low as they are it only costs $30 a month to hold this debt.

The person also has $10,000 cash on hand.

With banks failing and cutting off lines of credit and such, do you think it is a good move to just hold the cash instead of paying off the loan?

Point being, the loan could be paid off and it's still a revolving account and the money could be taken back if needed. That is unless, the bank closes the credit line due to a bad economy.

Find yourself a good investment with a fairly quick turn over. For only paying 30 a month I am sure I could make a serious amount more than that with 10,000 invested for a month.

There are a lot of folks out there that are giving things away at a good bargain because of time crunch. I know it sounds like preying off the damned but it is not. It is just business. Find good deals, turn them around and find some more deals and turn them around.

10,000 grand is a decent deal flipper for profit. Small amount of money so the risk is not that high but a good enough amount to get a fairly good deal on something somewhere to roll over for a profit. And it only costs you 30.00 a month.

I'm not one to want to pay interest so I'd tell you to pay off the line of credit loan.

Debt is never good in my opinion.

rick

I'd pay the loan off only because I am the type that does not believe in debt regardless whether the interest is tax deductible or not.

Any time you can get a loan for less the what you can make on a quick buy and sell and pay off thats a WIN/WIN. ...

Cheap Money.

As far as long term. be debt free as much as you can in these times.

Thats my best 2 cents for ya...

" Owe no man anything " be not a slave..

Best

Ron

Keep the cash, pay the little bit and then some to work the loan down at a faster rate. Helps on both ends.

Talk to your CPA. They will be able to tell you what the best way for your tax situation and you to go.

( the previous statement is in no way an endorsement for any particular CPA or firm) Wife works for CPA. (CMA)

OK OK

Give the money back.

Oh wait

Coffe and a goody 5 days a week will cost you 25 to 30 dollars.

The interest is a write off.

Oh wait. I just got rolled over buy a bank. I was told I was not worthy and a bad risk........(never late on a payment on anything for longer than I can remember) The same day....Today.....Without even asking another bank told me because I have such good credit and payment history on everything for always they were offering me that 10,000.00 in a credit line. True story and it just happened today with first Chase going thru the good the bad and the ugly and I got put some where inbetween and BOA outright offering me more (twice the amount than chase) in a line of credit. Chase chose me to add a little...well, a lot (a serious lot)....on interest on a low amount credit card. I never missed a payment (with them or anyone) and always paid 2 to 3 times what I owed for the month. I also only owed them less than half of the credit limit. Go figure. I cancelled the card and paid it off and closed my checking and savings account with them....They lose. They have made a grundle from me for years and years on checking, savings and credit card.

Yes banks are screwed up right now. In saying that.....You already have the money. You have all the time in the world to consider your options and where you could put this money to use....All for the same for coffee and goodies for a week.....and its a right off......I would hold on to it.....think hard and smart......Do what your conscience tells you to do. Yes there are things out there and low risk to make decent money on and I am not talking the stock market or anything to do with Bernie.

My point is not the investment or tax benefit end. It is the safety cushion end.

The loan is a line of credit that the bank cold rescind if the economy gets too bad. If one had just given the 10k to the balance, the ability to utilize that money in an emergency would then vanish.

By holding the cash, you pay $30 a month to have a cushion.

I'd rather stuff the 30. a month into a seat cushion or under a mattress.

How long can 10K last anyway?

rick

Originally Posted by John Dirks Jr

My point is not the investment or tax benefit end. It is the safety cushion end.

The loan is a line of credit that the bank cold rescind if the economy gets too bad. If one had just given the 10k to the balance, the ability to utilize that money in an emergency would then vanish.

By holding the cash, you pay $30 a month to have a cushion.

Why do you need a cushion ?

$ 30 a month for a cushion. Thats not a good idea.

Best

Ron

Originally Posted by John Dirks Jr

The loan is a line of credit that the bank cold rescind if the economy gets too bad. If one had just given the 10k to the balance, the ability to utilize that money in an emergency would then vanish.

By holding the cash, you pay $30 a month to have a cushion.

But how bad will the economy need to get in order for the bans to recind the LOC? If that hasn't happened yet, it seems unlikely it will happen in the near future.

I'm like some of the others here: the best debt is no debt. Pay the loan off and save the $30 per month. Why pay somebody $30 per month to have a rainy day savings? The home equity LOC is your rainy day backup plan in waiting. I'd pay the loan off to save on the interest and tap the home equity line if needed.

I would vote on getting rid of the debt. Use the $30 to build an emergency fund. Even a liquid Money Market account will pay a little interest. (<1-2%) Not a Money Market FUND but a cash account. funds can lose money. In any case, if you are not making interest enough to stay ahead of inflation (about 4% currently) you are going in the hole anyway. Any interest you make is taxable unless you have it in some sort of tax sheltered instrument. There are ways to do well.

Just as an eye opener for most, look up "The Rule of 72" discovered by Einstein.

It deals with how long it takes money at a given interest rate to double. Divide the interest you are getting into 72. The result is how many years it will take to double.
So look at the typical CD rates of 1-2% we currently get and you will see that it will take at least 36 years for the money to double. Now look at what the bank does with the money you give them. They typically put it out at 6-12% interest. Guess who's winning this game? Knowing the rules of the game can help you have a better chance of winning it.

It is always good to have some cash around but I never would borrow to do that. I usually just cash a few moon light work tips and put the $$ in my safe. Cash is always good to have around if you spot a good deal.