Pay off HELOC sooner or Fund i401k?

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ChinchillaWhiplash
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Pay off HELOC sooner or Fund i401k?

Post by ChinchillaWhiplash »

Ok, trying to figure out which is better to do. Have heloc for $43k interest only balloon loan with current rate at 5.25% (variable rate) due in 4 years. Have individual 401k that is already funded with 260k total. Only contributing 1k month right now. In 28% tax bracket. Have some other debts that will be paid off by July this year that will free up an extra 5k a month. Would it be best to put all of that towards the heloc or put more into 401k? Paying a little over minimum interest payment right now to knock out the bigger depts asap. Other numbers to consider are putting 1k month into savings to build up emergency fund until we have 50k. Currently have 17k so 33 months left. Then 1k towards 401k or debt. Funding HSA fully at 6900. Only have 3.5k in it now. Will still have student loans for 60k with fixed rate of 4.85% not deductible at current income levels. Plan to either refinance if we can get at least 1% lower rate once the heloc is paid off or pay it down with heloc funds. And finally the 30 year mortgage for 650k with 29 years left at 4.75% fixed. Plan to pay that down some once we can fully fund 401k and refinance into 15 year once it is out of the jumbo category. Retirement or partial retirement window is 12-15 years.

I would guess that it is actually better to fund the 401k, but unsure of how much interest rates could rise during the time before the loan is due. Maybe a compromise of an extra 2.5 k into 401 and a total of 2.5k month into heloc? Would have it being paid off in about 18 months. 401k funding for year would be 42k with tax savings of around 11k. Would this be a better route? Sounds better in my head anyway :greedy
Last edited by ChinchillaWhiplash on Sun Jan 21, 2018 2:51 pm, edited 1 time in total.
Kencufc
Posts: 133
Joined: Sat Jul 30, 2016 9:36 am

Re: Pay off HELOC sooner or Fund i401k?

Post by Kencufc »

Sounds like you have many different competing destinations for your money. Here’s my take
1) pay off any credit card debt
2) max out 401k, this will give you significant tax savings in your tax bracket
3) pay off HELOC, 5.25% variable, interest rates are rising. Also, new tax law states HELOC interest no longer deductible.
4) pay off student loans
5) now max out all tax advantages space you have including backdoor Roth and throw the remainder on your mortgage.
Everyone stresses so bad whether to payoff debt or invest. Both are good choices. By the time you retire, choosing one or the other probably won’t make or break your retirement.

“Everything should be as simple as possible, but not simpler.” -Einstein
Topic Author
ChinchillaWhiplash
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Joined: Sat Jan 20, 2018 4:40 pm
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Re: Pay off HELOC sooner or Fund i401k?

Post by ChinchillaWhiplash »

That makes sense. #1 on your list is my priority. CC, cars and 401k loan are what will be paid by summer. Yeah, the rising interest rates is what has me worried. Maybe I'll do enough to pay it off in 2 years and put everything else into the 401k. Thanks for your response :D

Think I will pay $1100 a month into heloc to pay it off in a little over 3 years. $4900 into 401k which given the new tax brackets would save $14k on taxes a year, in addition to investment growth. Yes, that seems like the best route to go.
Kencufc
Posts: 133
Joined: Sat Jul 30, 2016 9:36 am

Re: Pay off HELOC sooner or Fund i401k?

Post by Kencufc »

ChinchillaWhiplash wrote: Sun Jan 21, 2018 2:54 pm That makes sense. #1 on your list is my priority. CC, cars and 401k loan are what will be paid by summer. Yeah, the rising interest rates is what has me worried. Maybe I'll do enough to pay it off in 2 years and put everything else into the 401k. Thanks for your response :D

Think I will pay $1100 a month into heloc to pay it off in a little over 3 years. $4900 into 401k which given the new tax brackets would save $14k on taxes a year, in addition to investment growth. Yes, that seems like the best route to go.
As Dave Ramsey would say, you’re in a big hole but you have a big shovel! Overtime, as long as you’re on the Boglehead path, you truly do have some room for minor errors/detours and you will still get to the final destination!
Good luck!
Topic Author
ChinchillaWhiplash
Posts: 1574
Joined: Sat Jan 20, 2018 4:40 pm
Location: Land of Hypoxia

Re: Pay off HELOC sooner or Fund i401k?

Post by ChinchillaWhiplash »

Kencufc wrote: Mon Jan 22, 2018 3:40 pm
ChinchillaWhiplash wrote: Sun Jan 21, 2018 2:54 pm That makes sense. #1 on your list is my priority. CC, cars and 401k loan are what will be paid by summer. Yeah, the rising interest rates is what has me worried. Maybe I'll do enough to pay it off in 2 years and put everything else into the 401k. Thanks for your response :D

Think I will pay $1100 a month into heloc to pay it off in a little over 3 years. $4900 into 401k which given the new tax brackets would save $14k on taxes a year, in addition to investment growth. Yes, that seems like the best route to go.
As Dave Ramsey would say, you’re in a big hole but you have a big shovel! Overtime, as long as you’re on the Boglehead path, you truly do have some room for minor errors/detours and you will still get to the final destination!
Good luck!
Thanks! Took a few years for me to convince my wife that we were spending too much and needed to buckle down. She is all on board right now and we are finally getting on track for retirement. Better late than never, as they say.
Kencufc
Posts: 133
Joined: Sat Jul 30, 2016 9:36 am

Re: Pay off HELOC sooner or Fund i401k?

Post by Kencufc »

ChinchillaWhiplash wrote: Mon Jan 22, 2018 3:47 pm
Kencufc wrote: Mon Jan 22, 2018 3:40 pm
ChinchillaWhiplash wrote: Sun Jan 21, 2018 2:54 pm That makes sense. #1 on your list is my priority. CC, cars and 401k loan are what will be paid by summer. Yeah, the rising interest rates is what has me worried. Maybe I'll do enough to pay it off in 2 years and put everything else into the 401k. Thanks for your response :D

Think I will pay $1100 a month into heloc to pay it off in a little over 3 years. $4900 into 401k which given the new tax brackets would save $14k on taxes a year, in addition to investment growth. Yes, that seems like the best route to go.
As Dave Ramsey would say, you’re in a big hole but you have a big shovel! Overtime, as long as you’re on the Boglehead path, you truly do have some room for minor errors/detours and you will still get to the final destination!
Good luck!
Thanks! Took a few years for me to convince my wife that we were spending too much and needed to buckle down. She is all on board right now and we are finally getting on track for retirement. Better late than never, as they say.
I recommend you read Dave Ramsey’s Complete Guide to Money. Am a classic saver and my wife is a spender. We both at one time thought we were good with money but after reading that book we realized we had a debt crisis on our hands. Slow gradual change was better for me and m y wife rather than radical lifestyle adjustment all at once.
Topic Author
ChinchillaWhiplash
Posts: 1574
Joined: Sat Jan 20, 2018 4:40 pm
Location: Land of Hypoxia

Re: Pay off HELOC sooner or Fund i401k?

Post by ChinchillaWhiplash »

I will definitely check it out. Thanks!
Lane4Imaging
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Joined: Tue Apr 08, 2014 3:15 pm

Re: Pay off HELOC sooner or Fund i401k?

Post by Lane4Imaging »

I am a huge believer in the "pay yourself first" camp. You will feel better with the HELOC gone and yes, it no longer is a write off if you itemize. However, dollars invested today will be worth more than dollars invested in three to five years and over 30 years will make a difference. I would maximize all of my 401K, backdoor Roth and any other advantages including employer match before I would speed up paying the HELOC. I would not say the same thing for CC debt. Get rid of that, otherwise, maximize your investing while managing your debt. Go crazy on investing, not on spending. Pay yourself first!
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