Do I pay off debt or save money for down payment?

Guest 0.10 Dollars($)

I move in recently with my parents and wife to save money for the house. We still have to 8 months to do this. And, we have $4600 in credit card debt. Will it be better to pay off the credit card debt first and then save money. Or do I start paying for the debt and simultaneously save money for the down payment.

Guest 0.10 Dollars($)

Pay off the high interest credit cards first and then save money while paying off the low rate cards.

sara

Hi Edmund,

Welcome to the forums.

It is better to divide your money into payments towards the debt, the taxes (federal, state as well as local), the amount you wish to invest and your daily expenses. And, when you keep aside some cash for each category, see to it that you don't pay too much of debt so that you are unable to pay off the taxes.

Thanks,

Sara

Guest 0.10 Dollars($)

should i pay off my morgage first and then start saving for retirement or do both at the same time

Guest 0.10 Dollars($)

Its good to pay off the mortgage but its always better if you make monthly payments on the loan along with investing in your retirement plan.

Caron

Hi Patric,

Welcome to our forums.

Whether you should pay off the home loan first or invest in retirement plans depends upon your opportunity cost. For example, if the mortgage rate is 6% and you fall under 25% tax bracket, then considering tax deduction on mortgage interest, you are actually paying at 4.5% rate of interest.

If you make more than 4.5% after taxes with an investment, it's better not to pay off the mortgage. Otherwise, you may choose to repay the loan.

Thanks,

Caron.

helping_user

Hi Patric,

Its best to consider how much cash is available to you, the rate of return on your investment, how much your employer contributes. Also, how much you can save in interest by paying down the mortgage first and your tax bracket.

Thanks

jameshogg

Hi Patric,

If you have taken a large amount of loan, you are likely to get higher tax benefits. Now, if you make extra payments monthly, you would pay low interest amounts in later years.

Paying extra each month will help to repay the loan earlier than the loan period. Hence, you will not be getting tax deduction on mortgage interest in the later years. So, instead of paying off the loan early it is a good option to invest into retirement plans.

Thanks,
James.

Samantha

Hi Patric,

Let's suppose the same extra payment which you can make towards the home loan, is paid towards plans like 401K instead of the home loan. Your employer is likely to match your contributions. Now, add up the tax deduction on the first 13,000 of your contributed money ($16,000 for those above 50) to the estimated return on investment for the total contribution including what your employer contributes.

Compare the total amount with the interest that you will save by prepaying the home loan. If the total amount exceeds your interest savings, then you should invest the extra cash into the retirement plan.

Hope this is clear to you.

God bless you.

Samantha

Guest 0.10 Dollars($)

If you have good cash amount at hand, it's best to invest maximum amount into tax-deductible retirement plan like 401k. The remaining cash can go towards extra payment on the loan.

Zeal_Deal

adonis · Posted: Thu Dec 28, 2006 4:56 am Post subject:

Repaying the loan first may be a good option if you are close to retirement as during this time, your loan payments will cover mainly principal and very low amount of interest. Hence, your tax benefits on the interest will be quite low.

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