It's wise to pay down loans while Fed rates remain low

By Tim Suffish CFA, CPA, Vice President, St. Germain Investments The new phone books are here, the new phone books are here! Well, not really, but the credit card bills are. The good news from the holiday season is that preliminary reports show sales up almost 3 percent over last year. Retailers have kept store shelves lean, which means that more of those sales at the register find their way down to the bottom line. More presents under the tree, more money on the bottom line. everyone's happy, right? Yes, but for you and I, the bills need to get paid, and the time is now. Credit card debt has become a long standing tradition here in the U.S.A. There are widely varying statistics on what the average credit card balance is per person. Without getting into the details, let's just assume that we all carry a bit from month to month. With today's unprecedented low rates on savings, and the banks tightening up their rates and standards, carrying a balance is costing you. Here's something you should do now, to make the most of your savings and avoid paying more for revolving debt than you need to. While a home equity loan is one of the better vehicles for borrowing, if you are simultaneously holding cash AND a sizeable home equity loan, you're slowly bleeding cash (giving it to the bank, really). Despite the fact that today's borrowing rates are so low (often in the range of 4 percent), rates on deposits (like CDs) are also very low. So. if you're earning 2 percent on your savings, and paying 4 percent (yes, it is tax deductible), you are giving the bank money each month. A much better strategy would be to pay off the loan with the cash, while making sure that the equity line remains available in case of emergency. As the Federal Reserve continues its "full court press" of low interest rates, we are unlikely to see a hike in rates for quite a while, maybe late this year. Until that time, pay down your cards, and if you have idle cash, pay down that loan. Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street, Springfield, MA; Phone is 413-733-5111 or 1-800443-7624; web site:www.stgermaininvestments.com