The likely answer is it would be better off keeping the debt on the
credit card but full tax rates and filing status will be required to
determine the answer. Here is how you would go about it. To
determine the savings, you need to figure out what tax brackets you
are currently paying in both your federal and state income taxes and
if you are going to itemize your deductions instead of taking the
standard deduction as there is no tax benefit without itemizing (at
least on the Federal level and I'm not sure about all the state laws).
For example, lets assume the tax rate for federal was 30% and for
state was 10% (These number are probably close buy may be higher than
your real rates). For each $1 of interest you deduct you will be
saving $.30 on the federal taxes and $.10 on the state taxes. So on
your $22,000 loan at 6% would cost $1320 in interest and have a tax
savings of $528 ($1320x$.40) for a net cost of $792. For the credit
card loan, there is no tax benefit so the interest on $22,000 at
$2.99% would be $657.80. This is less than the net cost of the home
equity loan in this example so it would be the better choice.
Another thing to consider is the 2.99% is a fixed rate where the home
equity is not. Interest rates have been low for several years and are
expected to rise over time thus the cost of that loan will rise over
time. Also, your home is securing the load with the home equity loan.
If you were to default, they could repossess your home. That is not
the case of the unsecured credit card loan so with that one, there is
less risks to you assets.
Due to the above, it is likely the credit card will provide the least
costly route and also has other benefits like a fixed rate and not
risking your home assets. However if you keep it on the card,
consider paying higher than the minimum payment because quite often
the cards take 20-30 years to pay off at the mimimum rate. |
