"It doesn't make cents"

This is a new segment on the blog...John will be embarrassed, but his golf 'spending account' will be bursting with pride. I would like to take a moment and debunk financial rumors. Please skip past this section if you are already annoyed....(sorry to my friends who like to pretend I am not a nerd at heart)

Rumor #1- "Don't pay off the student loans, home equity line (HELOC), or mortgage because they are a tax deduction"

Logic behind the rumor- For some reason when I talk to people about our lofty aspirations of someday being completely debt free, I often am told that the student loans, HELOC or mortgage payments are good because they are a tax write off.

Truth- The tax write off will NEVER be larger than the interest percentage being paid on the debt. For example: My HELOC payment is $200/month or $2400/year (of which $2200 is interest and $200 is principle). On my annual tax returns I am able to write off the $2200, and exclude it from my taxable income. If my tax bracket is 25% then I save 25% of $2200, or $550. So my net loss is $1650. I am still out $1650. I would much rather spend that at Ann Taylor, than pay it to the lender because it is deemed 'good debt'.

If you have the money...it doesn't matter if the debt it tax deductible, pay it off!!! Don't pay interest to borrow someone else's money counting on a tax deduction, it doesn't make cents.