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Now more than ever people are looking at ways to get out of debt, but if you’re thinking about upping your payments in order to pay off your home equity loan sooner, not so fast. You may want to crunch some numbers first to see if that’s really the best decision for your financial portfolio. For some, getting rid of home equity debt is wise, but others it may be better served allocating your money elsewhere.

Let’s look at a few examples:

Situation #1
You have a home equity loan of $50,000 at 8.83% interest (the current national average interest rate for an 84-month home equity loan according to BankingMyWay.com). You also have an emergency savings fund of $4,000 (two months of expenses), retirement savings of $40,000 and $10,000 in credit card debt at 14.99%. You are 30 years old.

In this situation, your first priority should be to pay down your credit card debt. The rule of thumb is to always pay off your most expensive debt first. You may be focused on your home equity loan because it is secured by your home and you don’t want your home at risk. As long as you are able to make the payments on your home equity loan, however, you don’t have to fear foreclosure.

Paying off your credit card debt would be like getting a 14.99% annual return on your money. That’s probably a better return than you would see in any investment. You should also focus on building a more substantial emergency fund. You should have between three and six months worth of monthly expenses in liquid savings. If your job is not secure, your emergency fund should be your first priority.

Situation #2
You have a home equity loan of $50,000 at 8.83%, emergency savings fund of $12,000 (six months of expenses), $40,000 in retirement savings and no credit card debt. You are 40 years old.

In this situation, your focus should be on building your retirement savings. The sooner you start investing in your 401(k) or IRA, the more money you’ll have when you retire. At 40 years old, you are already behind on the money you could be earning through compound interest. You’ll likely earn far more over the long-term by investing any extra money you have than by directing it towards your home equity loan. Considering that interest on your home equity loan is tax-deductible, if you are in the 25% tax bracket, you are only paying an effective interest rate of about 6.62%.

Situation #3
You have a home equity loan of $50,000 at 8.83%, emergency savings fund of $45,000 (six months of expenses), $900,000 in retirement savings, no credit card debt and you are 50 years old.

In this situation, it makes sense to pay down your home equity loan because the rest of your financial portfolio is solid. You have ample emergency savings, no credit card debt and your retirement portfolio is well funded. While retirement is still a ways away, it is on the horizon so it’s wise to start getting rid of any mortgage debt. Owning your home outright in retirement will minimize your monthly obligations and make your savings last longer.

These are just a few possible scenarios that indicate where your priorities should be when it comes to financial planning for our future.

— For more ways to save, spend, invest and borrow, visit MainStreet.com.