The Pay Off Dilemma
I’ve been talking a bit more about getting out of debt completely lately and continue to read a lot of blogs about people who have either already accomplished this or are in the process of trying to. Though I’ve accomplished paying off my car loan early, I still have two school loans to payoff and save for a down payment on a future home.
I’ve been saving money for the past few years and putting it into a Roth IRA. Though I’d love to use this for retirement, the goal was to eventually use the money I saved for a down payment on a home. I read an article recently however on Yahoo here about answering your tough financial questions; it mentioned the below within it:
Should I Save for Retirement or Pay Off Loans?
Pay off the loans if the rate you pay is higher than the rate you can earn on investments — and you are saving enough for retirement to get an employer match. For example, paying off a credit card with an 18% interest rate is like earning an 18% return on your investments — a guaranteed return you can’t match anywhere else. After that, you can direct the money you had been using to pay off your debt toward your short- and long-term savings goals, including your retirement savings goals. Once you retire your debt, it will also be easier to focus on living within your means.
I don’t think the interest I earn on my Roth IRA is that much, though I don’t know the exact amount. I also have a 401(k) through my employer that I’ve increased my contributions on and that my employer currently matches (I don’t remember the specifics, but they’re at least matching!).
So here’s my dilemma. I have enough money in my Roth IRA to pay off one of my school loans. Since I have a 401(k), I’m still saving for retirement. After paying off one loan, I would then begin making those same monthly payments towards the other loan (or save up for a down payment on a home).
This is where I’m stuck. Do I keep the money I’ve saved for a down payment (or really save for a future cash payment) on a home or do I use it pay off one of my loans?
I want so badly to be debt free and find it difficult to put any extra contributions towards paying them off since I put that extra money towards my savings account and towards my Roth IRA.
Take into account that I haven’t spoken to my Financial Advisor about the regulations or fees (if any) that may be associated with withdrawing a large amount of money from my account. I’m just thinking out loud and looking for your insight.
Now I bring it to you, what do you think of my thoughts knowing that I want to save for a home, but I also want to be debt free? Right now, freedom from debt is a higher priority for me; but I don’t want to make the mistake for something I may want in the future as well.
Ah, the beauty and turmoil of money. What do you think?