HELOC or IRA

[Nodebt13]

why 8.5 %

what type of loan? why 8.5 that is high on residencial Mortgage.

If you can put it down to 6 to 5% You will save a lot of money.

you can get a heloc for less thant 8.5 and transfer a portion to the Heloc.

0 closing cost, at your local bank.

[LMA]

8.5% is pretty high. Are you getting a return better than that on your IRA?

If not, then payng off the debt might make more sense. I agree with doing both, still contribute to your IRA but have the bulk of it go to debt.

[jIM_Ohio]

To clarify my question, Is it more important to pay off debt or to contribute to my IRA? And no, I don't have enough in my IRA at 48. But, it's still paying off debt!

8.5% is not high, but its not low either. Because the interest is tax deductable, and the loan is secured (with a house), it is not "debt" in a bad sense.

What it comes down to is what is your goal?

Be debt free as soon as possible?
Be financially secure as soon as possible?
Retire as soon as possible?
goal could be something else, but I want to limit my response to only 3 variables.

If goal is being debt free ASAP, no brainer, suspend IRA and pay off the loan.
If goal is being able to retire ASAP, more info needed, but 90% of the time you will want to continue the IRA and take your time on the debt- with some assumptions made, and more info needed for sure.

If goal is being financially secure, you need to look at "time" and much money you will spend or save over a given period of time.

For example, if you told me the $12,500 is going to take 10 years to pay off on current schedule (with making only current minimum payments) and the IRA is invested in CDs or bonds, there is an answer here to pay off debt...
However if you told me same 10 year payoff and IRA is invested in equities, then I say IRA all the way, maybe funnel a little towards the debt, but with higher return in IRA, keep the debt and keep contributing to IRA.

If you can pay off loan fast- think in 10 months, and then direct all original loan payments plus overpayments to investing, it might make sense to pay off the loan early.

There are lots of variables, you need to give us more information for a specific response. General information gets a general response (that is what you have so far).

Specific information will give a specific response.

Here is what you need to provide:
Income level/spending level (how much of gross income is taxed, and what is take home income)
Current retirement contributions
Current debt payments (1st/2nd mortgage and other debt)
monthly budget (overall monthly spending patterns)

savings- do you have an emergency fund? How much?

then
what are your financial and life goals- retirement- financial security and risk profile? Debt averse, really debt averse or extremely uncomfortable with debt?

answer those questions for much better responses from everyone

[bones72]

Wow, thanks jIM, that's an excellent reply to a question. Your thorough answer also points out that if I am asking such a general question, then obviously my own financial plan is general or unfocused. Which is true. I want to be financially secure asap. I also want to be out of debt asap. Retirement, hmmm, I don't know about that.