Home Equity Loan
Pay home equity line of credit or Fund 401K?
We have been contributing to our 401k at the max. We have $30,000 in home equity line of credit debt. Should I stop funding the 401K and pay down the debt? Or maybe go half and half?
Public Comments
- If you are getting matching from your company the answer is pretty easy since you are getting 50-100% returns. If there is no matching, then it is complicated. With the funds rate low (helocs are indexed to the fed rate) and looking like it will go down further, the heloc is not that expensive. This is actually part of the reason why the fed lowers rates when the economy is performing poorly. The stock market is not a great place right now but long terms it should be fine. So you can argue this is a good time to dollar cost averge (i.e. buy more stocks when they are lower) My advise is to go with the 401K until rates are on the way up again. There is no right answer here.
- On page 197 of his book, "Total Money Makeover" Dave Ramsey cautions against HELs. The home equity loan puts your home at risk. Things may look good now but what happens when you face an emergency or two such as a car wreck, a job that is downsized and or unexpected health expenses. You will quickly go through the line of credit and the bank will call the note, thus kicking you while you are down. What you need is an emergency fund, not a loan. It's a personal choice but with your home at risk, your flank is exposed. Try taking money out of a 401 to stay in the home and you'll be hit with a penalty and taxes and probably lose 50% of your money. Pay off that loan. bg
