Finance: at 38, should I be paying down my HELOC or contributing to 401K?

Question

I'm 38, Married and have a primary mortgage of ~170,000 (@5.785%) and a HELOC of about 40,000 (@7.5%).

For years, I've always paid about $200/mo extra on my primary mortgage and contribute about 8% of my income to my 401K. Given the high interest rate on my HELOC, should I be putting every bit of available cash toward paying down my HELOC, or should I continue to invest in my 401K.

It seems to make sense for me to suspend my 401K contributions and put that money toward HELOC until the rates come back down or until the HELOC balance is more reasonable.

I have no other debt.

Any advice?

One more tidbit . . . . we have no plans to move and will likely stay in our hose for a long time. We've been here for 7 years already.

Answer 1

I'm surprised you're putting extra down on your mortgage instead of on the HELOC. The HELOC has a higher interest rate so put that extra $200 to the HELOC.

It is impossible to tell if 8% in your 401k is enough. I don't know your age or how much you have already in your account. Does your company match? How much? If you are in your early 30s then 8% is awesome! If you're 50 and have $50k in the account then 8% is horrible! Use a retirement calculator found on the web (Bankrate's is good) or use Quicken/Money for an even more comprehensive one. You need to figure this out before you can answer your question. But, generally speaking, retirement funding is more important than paying down a mortgage. In fact, it is generally more important than any long term debt. Generally, the only thing more important than retirement is short term, high interest credit card debt. But, it sounds like that's not an issue with you.

Answer 2

The way I see your situation, The 8% you are contributing to the 401k should stay the same. There are huge tax advantages to shielding that income from Uncle Sam. Apply the $200/ month to your HELOC. The interest on loans is also tax deduct able. $210k is not a bad level of debt for someone your age. I hope you spent the $40k HELOC on some investments that will appreciate in value. Good Luck.

Answer 3

Never suspend your 401(k) payments. At the very least, just reduce them down to whatever the percentage is that the company match is (for instance, if your company matches 50% of the first 6%, contribute 6% because you will get free money).

What is a HELOC?

Answer 4

Definately reduce the amount of 401K to the company match and pay down that mortgage....after all it is part of your retirement as well

Answer 5

Sorry, I can't help.
But I'll be waiting for you to know so I can also find it out.
Thanks.