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Author: RLFACE Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308411  
Subject: 125% Consumer Loans - Date: 5/29/1998 4:28 PM
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I would like to ask some specific questions with regards to debt consolidation. I am currently in the hocker with tons of consumer debt (Credit Card). This of course is making it tough to save like I would like
too and invest in my families future.

1) My first question is regarding the 125% loans that are being offered.
I am considering taking a 110% home equity loan to consolidate around 32,000. I have mixed feelings with regards to this type of loan. I do feel this will help my position in that I will be able to write off the interest paid on this loan with regard to income taxes. The down fall is messing with the equity in my house. ( Of course I will get getting rid of those high interest rate credit cards and revolving credit accounts.) And feel I should be able to pay off this debt quicker than if I keep going the way I am paying the min payments on the Credit cards because of the overall savings in the monthly payments. ( by applying the extra $$ to paying the debt off quicker.

2) I also heard that you suggest to paying off you debt instead of investing in 401k plans. Currently I am putting money in to a 401K plan in which the company is matching my investment. Please help me understand why I should stop investing in the 401k tax deferred account and begin to pay off the debt I have generated. I am making a good return on my money in
this account.

I would appreciate any help you could give to get me back on the right track. I know this is not unrealistic , but just want to make the right decision for my future.

Thanks for you response.
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Author: PSUEngineerFool Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1898 of 308411
Subject: Re: 125% Consumer Loans - Date: 5/29/1998 4:38 PM
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To your first question, the way I understand it, only the interest up to 100% of the value of your house is tax-deductable. The interest on the last 10% of your loan will not be deductable. I am not an expert so please consult the tax strategies folder.

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Author: PSUEngineerFool Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1899 of 308411
Subject: Re: 125% Consumer Loans - Date: 5/29/1998 4:47 PM
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To your second question:

What I meant to say before is to pay off unmanagible debt. Alot of us have debt such as credit cards, house, and car debts. But we pay what we need to manage our debts. We don't let the interest to keep building on the credit cards until it gets unmanagible so that we can keep funding the 401K.

My opinion is to:
1. Pay at least the minimum payments on the debts.
2. Get the company match in the 401K.
3. Then pay extra on the credit cards.

Other opinions? Please post your question in the retirement folder for more opinions.

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Author: Bottles Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1901 of 308411
Subject: Re: 125% Consumer Loans - Date: 5/29/1998 5:58 PM
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RLFACE,

I would have to agree with PSUeng.

1. Pay the min on the cards - at least.
2. Only put in the percentage up to the company matches to some level. Don't put more in at this point until you have the debt much more managable.
3. Pay extra on which over card has the highest intrest rate to pay it off first. Then go to the next highest and the next highest.

The other think I would recommend is to add up all the min payments you have to make & work on your budget to determine what is extra (if any) and put that to item #3 listed above. But keep that baseline min payments plus the extra and think of that as a Single large monthly credit card payment. Continue each month paying that amount (atleast plus any extra available in the future). Don't look at it as many little payments look at it as one big payment.

As for the Home Equity loan of 125% I dont know much about them and how much of the intrest is write offable as PSU suggest might be a concern. Its a choice you have to decide and if you do.. make sure you CUT the Cards up and Close the accounts (get in writting from them too that they are close). So you dont go out and charge them up again.

Good Luck and Hope to hear how your doing Soon!

Rob
Bottles

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Author: sam4d Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1906 of 308411
Subject: Re: 125% Consumer Loans - Date: 5/29/1998 7:25 PM
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RLFACE
You should contribute to your 401k. Be wary of equity loans as you can only deduct 100% of your equity as I understand it. You can also be stuck if you must sell the house to move.
If your job is stable and you are going to stay in your area, you feel that you can cut up the cards as they are paid and if your family is willing to live with a plan to stay debt free, a home equity loan will do wonders for your situtation.
Sam4d

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