I’ve accumulated $3500 and I don’t know what to do with it.<\/b><\/p>\n
As you may recall, I am carrying the remainder of my credit card debt in the form of a home-equity loan (or HELOC). The current balance on this debt is $15,000 and I’m paying a 9.25% finance charge. I intend to have this debt eliminated by March 2008. It’s an ambitious goal.<\/p>\n
In order to make this happen, I’ve had to forego investing in my Roth IRA. I established this retirement account last spring, but only put $650 into it before focusing on the HELOC. Now I have the money to fully fund it, but don’t know whether to do so, or to continue attacking the debt aggressively. There’s a time-pressure to this decision: Roth IRA contributions for 2006 must be completed by April 17th.<\/p>\n
On the surface, this seems like a no-brainer. By paying the $3500 toward the HELOC, I’d be saving $26.98 per month in finance charges. That’s a lot of money! But since I intend to have this debt repaid within a year anyhow, my maximum savings is only about $325. There are strong arguments for putting the money into my Roth IRA, despite the lack of a guaranteed return.<\/p>\n
Here are the factors that weigh in my decision:<\/p>\n
Which one will I choose? I’m going to fund the retirement plan.<\/b><\/p>\n
Why?<\/p>\n
I seem to have licked the Debt Monster. I stopped acquiring new debt long ago. Complete debt elimination is so close now that I can taste it. It’s a priority. Debt is no longer a psychological barrier for me, but saving for retirement is<\/i>. When I think of how little I have saved, I panic. I must<\/i> start saving, and funding my Roth for 2006 would be an awesome first step.<\/p>\n
I moved the money into my retirement account last night. Now I need to decide which index fund(s) to purchase. I thought the decision would be easy. It’s not. Though my account only allows me to purchase exchange-traded funds, there are still dozens of options: QQQQ<\/a>, SPY<\/a>, IWM<\/a>, EFA<\/a>, VTI<\/a>, TIP<\/a>, etc. It’s like alphabet soup.<\/p>\n