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Question: By the end of 2022, I will have made $350,000 before taxes as the sole breadwinner and head of household. This is a great starting point and I’m very aware how blessed we are to be in this position, but I’m always looking ahead on how to improve. I currently have $88K left in student loans (originally close to $150K) and very little credit card debt (less than $2K with more than $25K available). I have two auto loans totaling $170K for two electric vehicles at 5% interest.
I’ve recently been offered a $200K HELOC at 9%, which would help me bring down some of my monthly payments and do some small home repairs and improvements, but I want to make the right moves. And I’ve also been presented with a few long-term real estate investment opportunities that are rental properties out of state and are currently bringing it 10-12% ROI. But my biggest concern is that after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper I’m paycheck to paycheck. I’d like to use this HELOC to consolidate debt while also participating in some of these investment opportunities. I’m the first of my generation to own a home and the first to earn this much annually and don’t want to mess this up. How, specifically, can a financial adviser help me? (Looking for a new financial adviser too? This tool can help match you with an adviser who might meet your needs.)
Answer: You have a few questions to tackle here, so let’s go one by one. The first being the HELOC. Yes, HELOCs can be a good way to consolidate debt, but the rate you’re being offered isn’t favorable, as average HELOC rates are a little over 6%. “I would ask if 9% is the best rate you can get, because it appears a bit high,” says Chris Chen, certified financial planner at Insight Financial Strategists. What’s more, “I would like you to consider the potential impact that our Fed policy and inflation are having on interest rates, as HELOCs usually have variable interest rates and we’re in an environment with rising rates. You may start at 9% and end up significantly higher,” says Chen.
What’s more, your student loans, car loans and mortgage are all likely less than 9%, so it’s not likely that consolidation via a HELOC would save you money. “You may want to start somewhere different, like the snowball method, where you focus on one loan, usually the smallest one, and direct all of your resources to pay off that loan while maintaining payments on the others,” says Chen. This method could work to finish off your student loans and maybe one of your car loans, to start with.
MarketWatch Picks has highlighted these products and services because we think readers will find them useful; the MarketWatch News staff is not involved in creating this content. Links in this content may result in us earning a commission, but our recommendations are independent of any compensation that we may receive. Learn more
‘I’m paycheck to paycheck.’ I make $350K a year, but have $88K in student loans, $170K in car loans and a mortgage I pay $4,500 a month on. Do I need professional help?
Updated: Dec. 3, 2022 at 2:20 p.m. ETBy
Alisa Wolfson
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I’m the first of my generation to own a home and the first to earn this much annually and don’t want to mess this up. How, specifically, can a financial adviser help me?
GETTY IMAGESQuestion: By the end of 2022, I will have made $350,000 before taxes as the sole breadwinner and head of household. This is a great starting point and I’m very aware how blessed we are to be in this position, but I’m always looking ahead on how to improve. I currently have $88K left in student loans (originally close to $150K) and very little credit card debt (less than $2K with more than $25K available). I have two auto loans totaling $170K for two electric vehicles at 5% interest.
I’ve recently been offered a $200K HELOC at 9%, which would help me bring down some of my monthly payments and do some small home repairs and improvements, but I want to make the right moves. And I’ve also been presented with a few long-term real estate investment opportunities that are rental properties out of state and are currently bringing it 10-12% ROI. But my biggest concern is that after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper I’m paycheck to paycheck. I’d like to use this HELOC to consolidate debt while also participating in some of these investment opportunities. I’m the first of my generation to own a home and the first to earn this much annually and don’t want to mess this up. How, specifically, can a financial adviser help me? (Looking for a new financial adviser too? This tool can help match you with an adviser who might meet your needs.)
Answer: You have a few questions to tackle here, so let’s go one by one. The first being the HELOC. Yes, HELOCs can be a good way to consolidate debt, but the rate you’re being offered isn’t favorable, as average HELOC rates are a little over 6%. “I would ask if 9% is the best rate you can get, because it appears a bit high,” says Chris Chen, certified financial planner at Insight Financial Strategists. What’s more, “I would like you to consider the potential impact that our Fed policy and inflation are having on interest rates, as HELOCs usually have variable interest rates and we’re in an environment with rising rates. You may start at 9% and end up significantly higher,” says Chen.
What’s more, your student loans, car loans and mortgage are all likely less than 9%, so it’s not likely that consolidation via a HELOC would save you money. “You may want to start somewhere different, like the snowball method, where you focus on one loan, usually the smallest one, and direct all of your resources to pay off that loan while maintaining payments on the others,” says Chen. This method could work to finish off your student loans and maybe one of your car loans, to start with.
