Roth vs Pay Down Debt
Question: I’m 26 years old, and have no credit card debt, no car loans, no student loans. I max out my 401(k), and have a six-month emergency fund. Pretty good, right? But I also have a mortgage and a $40,000 second mortgage (which is structured as a home equity line of credit).
Over the past year, I’ve saved up about $5,000. My question is, should I put this money into paying off the home equity line of credit, or should I start a Roth IRA? I know the Roth IRA has higher returns over the long-term, but in my gut, I REALLY want to knock off that home equity line of credit. What should I do with the $5,000. Seattle, WA
Answer: First of all, I admire your financial acumen. I know that I was nowhere near as financially savvy as you are at your age. You’re saving for retirement. You have a nice emergency stash. And no debt other than your mortgage and home equity line of credit. It’s great.
If I were you, I would pay attention to your instincts: Go ahead and tackle that home equity line of credit. It’s a smart move.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.