If I have a line of Credit for 10,000 at 9%, and I have $8000 saved shall I pay it and be without savings?

Answer 1

Here's the scoop.

What rate are you earning on the $8000 saved? If it's less than 9%, then use the $8000 to pay down your LOC balance. After all, if you need it, you an always get it back (since it IS a line of credit!)

That said, if you can find a higher and better use for the $8000 where you'll earn a higher rate than 9%, then you should put it there as long as you're reasonably certain to get those higher returns.

Answer 2

Anyone that answers this question for you with the amount of information you gave is doing you a diservice. The fact of the matter is that there is a lot of information that is needed in order to answer you properly.

First of all you have to look at what's call "opportunity cost". What can you do with the money? Can you invest it for a higher return? Is the piece of mind you get from having savings greater than 9%APR to you?

You have to ask yourself what other sources of emergency cash do you have? If a hurricane came through your town, can you draw off or your line of credit?

PAYBACK PERIOD. How long will it take to pay back the 10k from your current period.

There are entirely too many variables to completely answer your question.

Anyone that tells you that it's better to be debt free is a fool, and most likely have never spent a minute in a college level finance or economics course...and definitely does not get compensated for their advice. :-)

Answer 3

What interest are you earning on the savings? I suspect less than 9%. In that case the mathematics is simple . Invest your savings in paying off the loan. The interest saved on the loan will be available for regular savings and investment..Repaying the loan will improve your credit rating and make it possible to borrow larger sums in future if needed. so you wont need the savings as a separate fund you can reborrow if needed, probably on more favorable terms.

there are always psychological factors in such a decision. perhaps a repayment schedule for the laon is the discipline you require to save?

Barring such matters, it is a matter of where you get the best return on your savings. If it earns more than 9% at present, don't pay the loan, as you are leveraging it into profit. If it earns less than 9% the best investment of your savings is in reducing the loan.

Answer 4

I think you should try to actually put some of that savings into something more agressive,without having to lost it all to pay debt off.
If you have $8000 in a savings account,you won't get very far,so maybe you should move 2 or 3000 into something more agressive and with time you can actually pay that loan off without losing your savings.

Answer 5

I'd personally pay it off or at least half of it. If you pay it off, and return the payments to your savings account, #1 you'll save the interest... If you pay off half of it, then, split up your payments, half to savings, half to line of credit.
I agree with others, and get some of your savings into something a little more aggressive.
Good luck in your decision.

Answer 6

Fred gave i think a very good answer. this is the way credit should work and pay off. banks want to know the people they loan money to are credit worthy and can repay a loan in a timely manner

Answer 7

My theory is that it is harder to save money than to pay a debt. Keep your savings and repay your monthly loan with as much as you can. That's what I do normally, you just don't know when you are going to need some ready cash.

Answer 8

Pay off half of the 10,000,this reduces your interest payments by 50% and you still have 3,000 savings

Answer 9

Pay your debts first before saving, period.

Good luck

Marc

Answer 10

pay off 1/2 and balance the other 1/2 to something either interest free or low interest