Do I sacrifice 401K saving to pay off Line of Credit?

[D49T]

Hey, New here but looks like great place for a little advice.

I'm debating if I should cut back on my 401k contribution to pay down our Line of Credit on our home.

I'm 40 and have a home mortgage of $180,000 and a LOC of $40,000 on our home. We are blessed to still have a lot of equity in our home.

I have over $300,000 in my 401k and my employer matches 6%. I contribute 14%. My dream is to retire a little early, maybe 55?? We'll see.

Do I cut back on my 401k contribution to 6%, so I still get the matching, and use the rest to pay down the LOC? Or, do I keep it where it's at? With our current income, we're not able to pay the LOC down at all (or very little). If I leave 401k where it is at, we may be able to pay a couple thousand a year toward LOC, but that'll take forever..

If I cut 401k back to 6%, it will free up $500/month that I could put toward LOC.

I also currently pay an extra $250/month towards the principal of our Home Loan (it's slightly higher apr than our LOC). We've been doing that for 3 years.

Thanks for the advice.

[Eagle]

Hey, New here but looks like great place for a little advice.

I'm debating if I should cut back on my 401k contribution to pay down our Line of Credit on our home.

I'm 40 and have a home mortgage of $180,000 and a LOC of $40,000 on our home. We are blessed to still have a lot of equity in our home.

I have over $300,000 in my 401k and my employer matches 6%. I contribute 14%. My dream is to retire a little early, maybe 55?? We'll see.

Do I cut back on my 401k contribution to 6%, so I still get the matching, and use the rest to pay down the LOC? Or, do I keep it where it's at? With our current income, we're not able to pay the LOC down at all (or very little). If I leave 401k where it is at, we may be able to pay a couple thousand a year toward LOC, but that'll take forever..

If I cut 401k back to 6%, it will free up $500/month that I could put toward LOC.

I also currently pay an extra $250/month towards the principal of our Home Loan (it's slightly higher apr than our LOC). We've been doing that for 3 years.

Thanks for the advice.

First welcome to the forumds!

We probably need more information but my advice would be to cut down the 401k contributions to the 6% match and pay off the LOC. Others may disagree of course.

1. looks like you're doing pretty well by trying to pay off your mortgage ahead of schedule with the $250 per month. Why not use that money to knowck out the LOC?

2. What are the interest rates on your mortgage and LOC?

3. What is your household total monthly take home income? Is it possible to look for and get a second part-time job while knocking this debt out?

4. What is your household total monthly expneses? Are you on a budget?

5. If you are on a budget what exepnses can you shave off your budget? Can you get rid of your cable/satelite bill? Or possibly discontinue the use of your home phone? Perhaps you could get a less expensive cell phone plan? When was the last time you got a quote on your car/home insurance? Consider also some of the suggestions in this thread.

Welcome again!

[lorraineb]

What is the interest rate on the LOC and what is your 401k earning?

[D49T]

rate on LOC is 3.99%
rate on Mortgage is 4.375

We are pretty frugal already, but may be able to find a few things to cut.

If I cut back on 401k, will this kill me in taxes? Raise my taxable income.
Will this crush my dream of retiring early?

Thanks for the tips!

[autoxer]

If I cut back on 401k, will this kill me in taxes? Raise my taxable income.
Will this crush my dream of retiring early?

It will certainly raise your taxable income, but you can figure out by how much. If you earn $75k/year, reducing your 401k contribution from 15% to 6% would raise your taxable income by $6k. If you are filing single, then you are likely in the 25% tax bracket, your tax liability would go up by $1,500.00 for the year. So reducing your tax deferred contribution by $6,000 would free up $4,500 in after tax take home pay right now.

That alone won't crush your dream of retiring early, but you should develop a more comprehensive plan to work towards early retirement if that is your goal.

• How many years are left on the mortgage, without the extra payments?
• Will you be staying in this home throughout your retirement?
• Do you have a savings target and spending plan, that would allow you to comfortably live off your investments?

Mathematically you are probably better off putting all of the money into the 401k, but a lot of people are more comfortable reducing liabilities than riding the stock market.

[Randomsaver]

my employer matches 6%.

Congrats. Mine's only 3.5%. Wish I'd know companies that give 6% or more. I heard AOL used to give 6%.