Hey all, wanted to survey some 3rd party opinions on something I have been mulling over.
2025 was a tough year for my home regarding repairs;
– A/C went out and needed replacement
– water heater broke
– main water line broke from the meter to my home
– fridge and oven both quit
– Patio roof leak
In the interest of retaining an emergency fund readily available we pulled from my HELOC. The balance is around $30k now and we are making payments of around $600-800 a month. At 7% interest I feel like we are getting killed on interest and not really making a dent in the overall balance, paying around $2500 in interest on the balance over the year.
The emergency fund is hovering around $10k at the moment, and I’m getting a $12k (post-tax) bonus in the first week of June.
In the interest (no pun intended) of saving on interest, am I dumb for considering taking the lump sum of $22k between the bonus and emergency fund, paying down the HELOC to under $10k, and aggressively build the emergency fund back up? My thought process is that if we ran into some substantial emergency again, we can just pull back those funds from the HELOC.
Does this strategy make any sense? Or is this basically a rob Peter to pay Paul situation?
Appreciate you all!
7% HELOC Paydown Using Emergency Fund?
byu/COPE_V2 inpersonalfinance
Posted by COPE_V2
3 Comments
7% debt is not an emergency, so using emergency fund dollars to pay it down, especially when your emergency fund sounds underfunded to begin with, is not a wise idea.
It is high enough interest that you should be focused on paying it off, so figure out where there is more room in your budget that you can direct future money into paying it off.
Its the downward spiral.
After you emergency fund to pay it, another emergency will happen, and heloc loan back.
Keep some spare cash always, pay it down, take a temp or side job or hustle if you have to so you can pay it off quicker.
Not many levers to pay down debt, more money, or higher costs and time.
Yes, that’s a good idea. If you have a HELOC available, that can be your emergency fund in the meantime. Right now you’re paying $2500/year in interest no matter what. If you pay off the HELOC balance, and then need to use the HELOC for another emergency, you’ll be paying interest on the emergency amount. Your worst-case scenario will be no worse than your current scenario.