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Ask 4 Questions Before Paying College Tuition With a Credit Card

From airline miles to free hotel nights and cash back rewards, the perks of paying with plastic add up fast.

So it may be tempting for families already shouldering the cost of college to want to cash in on those benefits when paying tuition.

After all, charging the fall semester bill to a credit card could earn Junior a free Thanksgiving flight home. Paying for spring semester with plastic could net a few hundred dollars toward a laptop.

Of the 300 largest public, private and community colleges, 87 percent accept credit cards for tuition payments under at least some circumstances, according to a survey from

But paying with plastic has its risks.

Here are four questions to ask yourself before charging tuition to a credit card.

1. Is there a fee for that? Covering tuition with a credit card carries an average convenience fee of 2.62 percent, according to the survey.

That may seem small at first, but it can add $262 to a $10,000 bill, easily wiping out a 1 percent cash back offer or double miles bonus. “The math starts to work against you pretty quickly,” says Matt Schulz, senior industry analyst at, who also contributes to the U.S. News My Money blog.

Not every school levies a credit card fee against students. But of the schools surveyed, just 23 four-year institutions accepted credit card tuition payments from undergraduate students without fees or restrictions. Community colleges tended to be more generous.

[Weigh the pros and cons of a community college bachelor’s degree.]

2. Can I pay off my card each month? It might be tempting to use credit in place of a student loan when money is tight and tuition is due.

But that gets expensive fast, say experts.

Federal student loans carry interest rates between 4.66 percent and 7.21 percent in the 2014-2015 academic year, depending on the loan.

A typical credit card rate was between 13 and 16 percent at the close of last month, according to, which aggregates rate information on financial products.

Neglect to pay off the balance each month, and the extra interest could compound quickly.

The biggest risk to paying with a credit card is not paying it off in time and finding yourself slammed with tons of interest, says Brian Kelly, founder of, a site about maximizing rewards on credit cards. That would wipe out any rewards earned on the transaction as well, he says.

In addition to avoiding the risk of compounding interest, student loan borrowers, who meet various eligibility requirements, gain access to alternative repayment plans, such as income-based repayment, loan forgiveness and a student loan interest tax deduction. Those are benefits a credit card repayment plan won’t offer.

3. Will it ding my credit score? Credit reporting agencies look at the credit utilization ratio, the amount of available credit a borrower uses, to determine a person’s credit score.

Experts recommend keeping the ratio below 30 percent, meaning that someone paying a $10,000 tuition bill would need to have access to more than $30,000 in credit to stay below that threshold.

“It is a very important portion of a credit score and formula,” says Schulz. “If you charge $15,000 in tuition that would put a serious hurt on your utilization ratio.”

[Learn how student loans affect your credit score.]

Empty-nesters, seeking to buy a new home, for example, might want to avoid doing anything to jeopardize their score and make qualifying for a mortgage more difficult.

4. Can I handle it? If a parent has enough cash on hand to repay the credit card bill immediately, a generous credit limit and is sending their child to a school that charges no credit card fees, then it may make sense to use that card to pay for tuition.

But it’s still risky, says Beverly Harzog, credit card expert and author of “Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made.”

[Find alternatives to a student credit card.]

“You’re walking a high-wire when you’re doing these kinds of things,” she says. “Be ready to take that risk.”

And students should avoid the strategy completely, opting for student loans instead. “Students generally have less credit education and are more susceptible to making mistakes and missing payments,” says Kelly.

After all, taking on student loan debt is burden enough without adding credit card repayment to the mix.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

Susannah Snider is an education reporter at U.S. News, covering paying for college and graduate school. You can follow her on Twitter or email her at

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Use caution when tapping into home equity


Homeowners who want to cash out their equity might be puzzled by the advantages and disadvantages of their three choices: a home equity line of credit, home equity loan or cash-out refinance.

Which makes the most sense?

The answer depends on:

How much equity you have. How much you want to borrow. When you plan to repay the money. Whether you want a fixed or flexible term. The interest rate on your current mortgage.

A home equity line of credit, or HELOC, is a credit line secured by your home.

Most HELOCs have an adjustable rate, interest-only payments and a 10-year “draw” period, during which the borrower can access the funds, explains Jay Voorhees, broker and owner of JVM Lending, a mortgage company in Walnut Creek, Calif.

After the draw period ends, the outstanding balance must be repaid. Typically, the repayment period is a 15-year term with a fixed or variable rate.

Voorhees says that homeowners can qualify for HELOCs if they have adequate income relative to their monthly debt obligations. They can find this type of financing for 80 percent of combined loan to value or even 85 percent or 90 percent combined loan to value.

A HELOC can be a good way to borrow a relatively small sum for a relatively short time compared with a first mortgage, says Justin Lopatin, vice president of mortgage lending for PERL Mortgage in Chicago. An example might be $20,000 that you plan to repay within three to five years.

It can be “very tempting” to access a HELOC even if it’s not necessary, a disadvantage of this type of financing, says Alan Moore, a CFP professional at Serenity Financial Consulting in Milwaukee.

“You have to carefully consider: What are your long-term goals? What is the money for?” Moore says. “Realistically, having easy access to money is not always a good thing.”

Like a first mortgage, a home equity loan allows you to borrow a specific sum for a set term at a fixed or variable rate. That’s why these loans are sometimes called second mortgages.

Home equity loans aren’t common today, yet some banks still offer them.

An alternative is a HELOC that’s structured like a fixed-rate home equity loan.

Kelly Kockos, home equity product manager for Wells Fargo in San Francisco, says the bank offers a HELOC with a fully amortizing payment, which means the loan is repaid in full if all the payments are made through the draw period.

“With every payment you make, you pay down a little bit of principal and a little bit of interest so when you get to the end of your draw period, you don’t have a big payment shock,” Kockos says.

A fixed-rate advance option allows the borrower to lock in a portion of the credit line at a fixed rate and term. If interest rates change, the advance can be unlocked to float down to a lower, current rate, Kockos says.

A cash-out refinance is an entirely new first mortgage with cash back.

This option often appeals to homeowners who want to refinance for other reasons and decide to take out cash at the same time.

“It’s a good way to grab equity and keep it all in one loan,” Moore says.

He cautions, however, that any loan or cash-out strategy must have a clear purpose. Don’t take the cash just because you can.

Lenders typically limit the cash-out refinance to 80 percent of the home’s value, Voorhees says.

It’s important to compare closing costs and interest rates. Fees might be higher for a cash-out refinance than for a HELOC, while the interest rate might be lower for a cash-out refinance than for a HELOC, all other factors being the same.

The ability to lock in a low fixed rate is an advantage of a cash-out refinance, Voorhees explains.

“Whenever your payback period is going to be relatively slow, it behooves you to have a fixed rate because it’s much safer,” he says.

Your new monthly payment might be higher or lower than your current payment, depending on your interest rates, loan balances and repayment terms.

For example, if your existing loan has a very low rate, a cash-out refinance could mean your rate would be higher for your entire loan, not just the cash-out portion.

Marcie Geffner writes about mortgages for


Why you should pay off your car loan ASAP


You may not save a huge amount on interest, but you’ll free up cash in your budget every month.

By Jean Chatzky

Free yourself of your car loan.

FORTUNE — Let’s say you have an extra few thousand dollars — maybe from a tax refund, a bonus, or some other quick windfall. How can you best put it to use?

There are a lot of options, and high-interest rate debt goes on top of the pile. But if you haven’t done that kind of borrowing, and you have a comfortable cushion of emergency cash, you might consider throwing it toward your auto loan.

Why? Not because you’re going to save a huge amount on interest. You will save some, but most car loans have fairly low interest rates these days, averaging 2.98% for a 60-month new car note. (Note: Used car loans are — surprisingly — even a little cheaper than the new ones. They’re averaging 2.78% on a 48-month loan, 2.86% on a 60. If you had lousy credit or didn’t shop carefully for financing when you bought your car, refinancing is a good and simple move. Credit unions are a particularly good source of loans.)

But the majority of car loans are calculated using what’s called the simple interest method, says Mike Sante, managing editor of This means the interest paid each month is based on the loan’s outstanding balance. “The earlier you pay off or pay down these loans, the more you’ll save in interest payments.” You can figure out how much you’ll save on your particular loan by plugging your numbers into a calculator like the one at

Not wowed by the figure? You don’t have to be. The real reason for getting out of a loan like this early is that you’ll be freeing up money in your budget every month. There’s an opportunity cost involved whenever you borrow money, and it’s a cost many people fail to consider.

“We are in favor of paying off auto loans early because it can help you cope with sudden life changes and afford you more freedom in the long run,” says Philip Reed, senior consumer advice editor.

This is, by the way, is the same logic that suggests it’s a good idea to get out of your mortgage — despite its low rate — before you retire. And that, if you have extra cash to throw against your student loan, you should consider that too. It’s not the hefty interest rates associated with these debts, but rather the fact that you have them that stops you from doing other things.

The average monthly payment on a car loan right now is $471 — what else could you do with that money each month? For instance, if you invest it instead at a 6% interest rate, you’d have close to $77,000 after 10 years. You could build a fully fleshed-out safety net — something more than half of all Americans don’t have right now. Or maybe it would simply give you a little more breathing room in your budget.

In the best of all possible worlds, you could also use that freedom as an opportunity to build a habit of saving. Let’s say you have $3,000 left on your car loan, and you pay it off in one shot with a windfall (very possible, as the average tax refund this year is very close to that number). Then you invested the $471 every month, like the example above that gives you $77,000 after 10 years. If you instead just invested that $3,000 at 6%, you’d only have $5,373 after 10 years. Now, obviously, you’re investing a lot more money with the first example, and that’s why you end up with much more. But part of the reason we don’t save is that we never give ourselves the ability to see how good it feels. Once you start to see your money growing, you’ll be inspired to keep at it.

If you decide to put a chunk of money toward your auto loan, you want to make sure you’re actually paying down principal. In many cases, paying extra will signal to the lender not that you are trying to reduce the amount of interest paid or get out of the loan early, but that you don’t have to make another payment for a few months. If you want the payment to go toward principal — and you do — you should call the lender and ask how to make that happen. “In some cases, you may need to restructure the loan (which can be done without prepayment penalties). In others, you might have to write two separate checks and clearly instruct the second payment to go toward principal,” Reed says.

Arielle O’Shea contributed to this report.

More from Jean Chatzky:

To bribe or not to bribe – your kid? Why Buffett doesn’t always know best Are you paying too much for auto insurance (no, this isn’t an ad)?

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Shop for a loan before shopping for a car

If you’re shopping for a car loan, here’s some advice:

• Get preapproved for a loan before you walk into a car dealer. You’ll know how much car you can afford, and you’ll have a loan that you can compare to the dealer’s loan offer.

• Check out local credit unions — they tend to charge less than banks.

• Don’t fixate on the monthly payment. That’s important, but focusing on the payment alone can make you vulnerable to a long-term, high-interest loan.

• Opt for the shortest-term loan that you can afford.

Now for the details.

An uneducated buyer is putty in the hands of a car dealer. He’ll shape the financing to profit the dealership, not you.

“Dealers love to focus on the monthly payment. It gives them huge flexibility,” says Rob Swearingen, a lawyer at Legal Services of Eastern Missouri who defends poor consumers in auto loan cases.

For instance, they can get the monthly payment down by adding years to the term of the loan, while charging a higher interest rate. The consumer may pay a lot more over the long run, says Tammy Hampton, a vice president at Gateway Metro Credit Union.

“It could be a nine-year note at 10 percent interest, and they (the customers) don’t care. They only care about the monthly payment,” Hampton says.

So, a smart consumer shops for a loan and gets approved in advance. Hand the offer to the dealer and say, “Beat this.”

The St. Louis consumer has dozens of lenders to choose from. You can get a partial list at sites such as and or inside this business section. Take their advertised interest rates with caution. They’re often the best rates offered to people with very good credit. You may well pay more.

WalletHub, a personal finance website, surveyed 137 auto lenders around the country last fall. Credit unions offered lower rates, at 40 percent below the banks. Meanwhile, small local banks tended to charge more than the big national banks.

For a new car, auto manufacturers tended to offer the best rates of all, averaging 42 percent below the banks. However, cut-rate loans are often offered as an alternative to cash off the sticker price. Depending on the details, you might be better off taking the cash.

“Keep an open mind about where you’ll get your car and your financing,” says John Kiernan, senior analyst at WalletHub.

You can usually apply for a loan online for free with a verdict back in a day or less.

You might try several in search of a good deal. But do all your applying within a day or three. Credit scoring companies count the times your credit is checked by lenders. If they see a lot of checks in rapid succession, they’ll think you’re shopping for a loan and ignore it. If they see lots of checks over a prolonged period, they’ll think you’re in trouble and cut your credit score.

You can get a free copy of your credit report from each of the three major credit agencies once a year at or at 1-877-322-8228. Check it for errors before you ask for a loan.

There are several moving parts in an auto loan — your monthly payment, the length of the loan, the fees and interest rate. Uncle Sam mandates a handy comparison tool for comparing loans — the APR, or annual percentage rate. That’s a measure of the loan’s price, including fees and interest, expressed as an annual percentage of the loan amount.

Under the law, the APR has to be disclosed to the buyer, but you may not see it until the final moments before signing. So ask for it in advance.

Opt for a short loan length if you can. It means a higher monthly payment, but less money lost to interest. On a $15,000 loan at 4 percent, you’ll save $632 in interest by opting for a three-year loan instead of five years.

A short payoff period may also avoid “gap insurance,” which might run $300 or more. That comes into play when the value of the car drops more quickly than the principal left on the loan.

This makes it tough to trade in the car for a better model. Worse, it could leave the owner on the hook should the car be totaled in a wreck. Auto insurance pays only the value of the car, not the amount you owe. Thus the need for gap insurance.

Swearingen’s law firm is a charity outfit. His clients are poor people, often with lousy credit. They find themselves stuck in subprime auto loans with interest rates of 20 to 25 percent. Such rip-off deals often contain add-on services that raise the cost even higher.

Some of those borrowers might well qualify for better loans than the dealership is offering — if they shop around.

But if a stinky loan is all you’re offered, consider a bicycle and a bus pass.

Save what you’d spend on a car payment until you have enough cash for a cheap, ugly clunker. Drive it until the wheels fall off.

Keep saving the car payment while you’re rattling along in your rustmobile. By the time the old beater gives out, you’ll have saved enough for a nicer car.

A $200 monthly car payment, saved in a bank for five years, will get you $12,500, and some reliable wheels.

The old-beater option is also a good move for young people just starting out.

Kiernan, 26, drives an ancient Volvo.

“Safe and cheap,” he says. “It gets me there alive and on time, and I’m cool.”


Steer clear? auto loan refinancing

A lower car payment, what’s not to like?

It’s an enticing proposition, but refinancing an auto loan can often significantly increase the amount you have to pay over the life of a loan.

“The concept of lowering your monthly payments will often outweigh the financial sensibility of that decision,” said Jack Gillis, auto expert for the Consumer Federation of America.

And yet, a growing number of borrowers are electing to refinance their auto loan. Last year, auto loan refinance inquiries on nearly doubled from a year earlier, according to the online lending service. Completed loans jumped 47 percent from the previous year.

But when might refinancing your auto loan be a smart move? Here are four factors to consider:


Refinancing an auto loan enables you to pay off your lender and take on a new loan at a more favorable annual percentage rate, or APR.

That means that you generally wouldn’t consider refinancing unless you can get a lower APR. But there is an exception: If you want to lower your monthly payment and are willing to extend the repayment period for your loan. Of course, you will be paying more money over time.

Unlike mortgage loan refinancing, lenders generally don’t charge fees or closing costs to refinance an auto loan. That places a priority on shopping around for the best rate. In recent weeks, auto loan refinancing offers on LendingTree have been available for 1.99 percent for borrowers with the best credit scores.

Check lender websites or portals like or


The most attractive outcome in any refinancing is to lower the amount of you will repay during the term of the loan.

Maybe you didn’t shop around when you went car shopping and feel you could have negotiated a lower interest rate. Or perhaps your credit score has improved significantly since you took out your auto loan, so you are now able to qualify for a lower interest rate. Refinancing could trim your finance charges.

Paying off your original loan when you refinance could help boost your credit score, as the loan would show up in your credit history as paid off.

Lenders and financial information sites often have online calculators that can help you estimate whether a new loan will save you money, such as:

Many free financial apps are also available for smartphone and tablet users.


Prolonging the life of a car loan also can be risky because — unlike real estate which can appreciate — cars lose their value over time. Extending the loan term means that you will owe more on the vehicle than it’s worth for a longer period.

“This is a terrible position to be in if the car gets stolen or gets in a serious accident or you desperately need to sell,” said Gillis.

One rule of thumb: If you have less than two years left on your loan, avoid refinancing. “If it’s a cash-flow issue, it’s a consideration, but I wouldn’t do it,” said Rick Finch, general manager of LendingTree’s auto segment.


Banks often cap both the amount they will lend and the repayment period for a refinancing. They may also limit the kinds of vehicles that are eligible.

Some lenders won’t refinance loans on motorcycles or recreational vehicles, for example. And typically, lenders will only refinance vehicles that are no older than seven years.

LoansInvesting Education […]

Home equity offers make a comeback, but be careful

The comeback in home values means more people can tap into quick cash through home equity loans to pay for college, credit card debt or even redo a driveway.

Jo and Bronce Click of Dearborn Heights, Mich., took out a $12,000 home equity line of credit about two weeks ago specifically to pay for a driveway that’s estimated to cost about $7,000. She obtained the loan through her credit union at a rate of 5.25 percent — or 200 basis points plus the prime rate, now at 3.25 percent.

“It seemed like the logical option versus using a credit card. The interest rate on a credit card is ridiculous,” said Jo Click, a graphic designer.

The Clicks are on the front end of a rising trend in home equity lending.

Community banks, credit unions and major banks have shown renewed interest in making the loans and offering lines of credit, as home values climb in many markets.

Originations of home equity loans exploded in the second quarter, according to credit reporting agency Experian. Experian reported that $29.4 billion in home equity lines of credit were originated in April, May and June — up from $22.1 billion for 2013’s first three months.

Consumers who want to borrow against the house need to understand that rules have changed and a few more chores are required to qualify for that loan. Lending standards are tighter than the go-go years. Consumers can save money by shopping around for the best rates on the Internet and with local small lenders who may offer even more competitive rates.

The average rate on a home equity loan is 6.14 percent. The average rate on a home equity line of credit is 4.99 percent, according to

The trick, as always, is to have enough equity in the house.

Take a home valued at $100,000 with a mortgage of $70,000. The homeowner would have $30,000 in equity, but forget about trying to borrow $25,000 or $30,000. In many cases, the homeowner would only be able to borrow $10,000 through a home equity loan.

Many lenders want the homeowner to retain 20 percent equity in the house even after taking out a home equity loan or line of credit.

“The lender is not lending every last nickel of property value,” said Greg McBride, senior analyst for

During the boom, it was possible to borrow 80 percent of the home’s value on the first mortgage and then borrow the other 20 percent on a home equity product. But now it’s going to be hard to borrow more than 80 percent of the value of your home, including on the first mortgage.

Expect some sort of appraisal on the home. The timeframe for obtaining the home equity loan can range from about two weeks to roughly 30 days.

Homeowners generally need a credit score of 720 or higher. They’ll need to verify employment, offer proof of income and shop harder to find a home equity loan for $10,000.

Some lenders no longer offer small home equity loans or lines, either.

Discover Financial Services’ new home equity loans, for example, range from $25,000 to $100,000.

Bank of America’s minimum for a home equity loan is $25,000 as well.

Wells Fargo, one of the major players, said it offers home equity loans with a minimum loan amount of $20,000.

A home equity loan can help consumers with a “life event,” such as taking on a home improvement project or even consolidating higher-cost credit card debt to get out of debt. For any of these loans to work, a homeowner cannot owe more on the house already than the house is worth.

Kelly Kockos, senior vice president and home equity product manager for Wells Fargo, said qualifications for getting a home equity loan are more stringent today than they were in the past. Homeowners need to verify their income and provide documents to validate their financial profile.

Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at ?


Leverage a Low-Rate Car Loan

We have about $9,000 remaining on our car loan at 5.99% interest. We’ll be buying a second car soon and have been offered a 1.99% auto loan. Now we are wondering if we should use some of the money we had planned to use for a down payment on the new car to pay off the 5.99% loan and put less down on the car with the lower-interest loan?

SEE ALSO: How to Get the Best Deal on New Car

That could be a good way to take advantage of today’s low interest rates if you’re going to buy a new car.

Find out how much of a down payment is required to qualify for the 1.99% rate — a 10% down payment is common, says Greg McBride, senior financial analyst with “With a rate that low, there’s no incentive to put down more than you have to,” he says. And make sure your old lender doesn’t have a penalty for early payoff (most don’t for standard loans).

You may be able to get an even better deal on your new loan, especially if you have a good credit score. Gerri Detweiler, of, says the 1.99% is attractive, but the lowest national rate is currently just 0.74% for a four-year loan and 1.37% for a five-year loan. You could also refinance your current car loan — the low is now 1.29% for a four-year loan, says Detweiler. You may also have to pay an application fee or closing costs to refinance.

Detweiler notes that if you do put little money down on the new car, you could be upside upside-down for a while — meaning you owe more on the loan than the car is worth. You can minimize this problem by boosting the down payment, shortening the loan period, buying gap insurance to pay the difference between the car’s depreciated value and the loan balance if your car is totaled, or keeping extra money in savings to self-insure this potential risk.

If you have extra cash beyond the minimum down payment, ask yourself whether paying off the higher-interest loan on your other car really is your top priority. Consider your overall financial situation and how the extra money can help. “That cash may be better used to pad their emergency savings, pay down other higher-cost debts, or make an IRA or college-savings contribution,” says McBride.

SLIDE SHOW: 10 Cheapest Cars to Own Little-Known Discounts for Car Buyers Deals Available on Used Cars […]

7 Strategies to Build an Emergency Fund

You know you need an emergency fund — easily accessible cash to pay for unexpected expenses. Without one, you could find yourself looking around the house for valuables to pawn, racking up credit-card debt or maybe even considering a payday loan to cover the costs of an emergency.

SEE ALSO: 9 Reasons You Need an Emergency Fund

But you may be wondering how you can find enough spare cash in your budget to set aside for a rainy day. If you’re living paycheck to paycheck, I’m sure the thought of saving up enough money to cover six months’ worth of expenses (as is usually recommended) is especially daunting. The good news is that you don’t have to stash that much cash at once.


The key is to start setting aside a little each month to build your emergency fund. And that doesn’t require a big salary. After all, saving is a function of discipline, not income.

Here are seven ways to find enough money — and motivation — to create an emergency fund.

Save — don’t spend — your tax refund. About 75% of taxpayers received a refund last year, and the average amount was $2,913. A refund of that size can get your emergency fund off to a great start. Open an interest-bearing savings account and have the money directly deposited into it so you won’t be tempted to use it.

Pay yourself first. Rather than wait until next year for another refund to stash in your emergency fund, adjust your tax withholding by filing a revised W-4 form with your employer (see How to Adjust Your Withholding). This will put more money in your paycheck each month, and you can set that amount aside in your savings account so it can earn interest and grow. (That money won’t be earning any interest during the year if you leave it with Uncle Sam.) If possible, have your employer deposit the designated amount directly into your savings account so you don’t see the money in your checking account and aren’t tempted to spend it.

Find ways to cut back. There’s probably more spare cash for an emergency fund in your budget than you realize. See Build a Better Budget in 2013 for tips on tracking spending and finding ways to cut back.

Generate extra cash to stash. If you’ve already cut back as much as you can just to make ends meet or want to save even more after implementing the tips above, look for ways to earn more money. See 11 Ways to Get Extra Cash and 11 More Ways to Get Extra Cash for ideas.

Set a goal and monitor your success. When people want to lose weight, they usually have a certain number of pounds in mind. And they monitor their success by stepping on the scale regularly. Use the same approach for your emergency fund. Set a goal, and sign up to receive account balance e-mails from your bank. Those regular reminders may encourage you to keep stashing more cash to reach your goal.

Create a competition. If you need more motivation than an e-mail reminder from your bank, consider enlisting the help of your spouse, relative or friend. See who can cut their spending and set aside the most each month. Imagine the amount you and your significant other can save if you’re both regularly stashing cash in your emergency fund. Even if you can’t find anyone to join you in a savings competition, you still could get the extra motivation you need by sharing your goal and reporting your progress to someone.

Toss spare change in a jar. I know what you’re thinking: “Do you seriously think I can build a decent emergency fund by tossing coins in a jar?” No, I don’t. But every little bit helps. My daughter has saved several hundred dollars just by collecting our spare change. You could, too – and you probably wouldn’t even miss that change jingling in your pocket or floating around at the bottom of your purse.

The place to put your emergency savings is in a savings or money-market account. The interest rates on these accounts are not great now, but your principal will be safe and you’ll be able to access your money easily. See to find the best account for you.

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Is a cash-out refi better than a HELOC?

Dear Dr. Don,
I currently have a 15-year fixed-rate home loan at 3.75 percent. The bank appraised the house at $275,000 and the balance on my loan is $186,000. My credit score is 829 and my husband’s is 732. I’d like to refinance this loan and take out about $20,000 in cash. The bank says that, without the cash out, the loan will be about 2.7 percent for a 10-year fixed-rate loan. It’ll be 3.25 percent with cash out. Closing fees will be about $1,900. What should I do?

— Rosa Refi

Dear Rosa,
That’s a tough one. You have some options, including a cash-out refinance or a home equity line of credit, or HELOC.

What’s the goal: to save money in refinancing, get cash out or both? Paying an additional 0.55 percent interest for the privilege of taking out cash seems excessive with the equity you have in your home and your solid credit scores. But it’s actually not excessive for a cash-out refinancing. Since gaining access to the funds is one of the drivers behind the refinancing, then abandoning it to get the lower interest rate doesn’t make sense.

Over the 10-year term, when refinancing just the outstanding loan balance of $186,000 you’ll pay an extra $5,662.38 (pretax) in mortgage interest expense by taking the 3.25 percent rate loan versus the 2.7 percent rate loan.

As the table below shows, you’re paying an extra $5,600-plus over 10 years for the privilege of borrowing that $20,000 today. How important is it for you to tap your home equity to get access to this money?

Which refi rate to take?

headline? headline? Difference Loan amount $186,000.00 $186,000.00 None Loan term (months) 120 120 None Interest rate 2.7% 3.25% +0.55% Monthly mortgage payment $1,770.39 $1,817.57 +$47.18 Total interest expense (pretax) $26,446.49 $32,108.87 +$5,662.38

You could take out a home equity line of credit or a home equity loan to get the $20,000 at lower closing costs. However, you wouldn’t capture the interest rate savings on the outstanding loan balance. Also, the interest rate on the home equity line or loan is likely to be significantly higher than the 3.25 percent you’re being offered on the cash-out refinancing. I say you should go ahead with the cash-out refinancing.

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Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

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Dear Dr. Don,
We bought our home two years ago for $735,000. To finance it, we borrowed $417,000 on a jumbo loan, $138,000 on a home equity loan and made a $180,000 cash down payment. We will have the home equity loan paid in full around June. After that, we’d like to refinance the mortgage. The balance is right around $400,000 now. I’d like to put another $20,000 more down and get a 5/1 interest-only adjustable-rate mortgage. That’ll lower my monthly payments, giving me enough extra cash to pay off the mortgage in five years. Is this a good move?

— Shelly

Dear Shelly,
Bankrate readers may feel a little envious over your ability to finance your home. After two years, you’re close to paying off a $138,000 home equity loan, and you also have an extra $20,000 to pay down your first mortgage? That’s impressive.

Your original first mortgage was within conforming loan limits at the time for a conventional mortgage, so I’m not sure why you were placed in a jumbo, or nonconforming, loan. A nonconforming loan would have a higher interest rate. You didn’t tell me what your current interest rates are, so it’s impossible to say how much you’d save by refinancing, especially with your plans to aggressively pay down the loan.

If your goal is to pay off the refinanced mortgage over the next five years, then you have no real need for an interest-only loan. With rates so low, I also don’t see the need for a 5/1 adjustable-rate mortgage. You’re taking on a fair amount of risk that interest rates head higher, but not getting a big discount on the mortgage rate for taking on that risk.

As I write this, the Bankrate national average for a 15-year fixed-rate mortgage is 2.89 percent and a 5/1 ARM is 2.74 percent. You’re risking a lot for a 0.15 percent differential. The pretax mortgage interest differential on $400,000 over one year is $600. I’d be willing to pay that difference to have that low rate locked in for the next five years. Remember that the difference in interest expense would decline as you paid down the loan.

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Ask the adviser

To ask a question of Dr. Don, go to the “Ask the Experts” page and select one of these topics: “Financing a home,” “Saving & Investing” or “Money.” Read more Dr. Don columns for additional personal finance advice.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

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