Should We Pay Off Our Car Loan Before Opening a Roth IRA?

Dear Dave,

My wife and I have a financial dispute. I would like to go ahead and fully fund our Roth IRAs, even though we have about $ 10,000 in auto loan debt. She, on the other hand, thinks we should pay down the debt first. We will probably be able to complete one or the other by the end of the year. What do you think we should do?

Mark

Dear Mark,

I have to go with your wife on this one. Glad you two are having discussions about money and working to make decisions together, but you will never take control of your finances until you get rid of the mindset. that the debt is acceptable. Once you lose that idea, you’ll begin to realize that missing a year of funding your Roth IRAs isn’t going to kill you. It won’t stop you from getting rich and living like no one else when you start thinking about retirement.

If you keep in mind that it’s okay to have debt, or you’re going to leave it lying around, it will end up ruining you financially. Earning with money is more a matter of behavior than of math. Don’t get me wrong, you have to calculate the numbers and factor them in, but all of the math components are just theory if the behavior doesn’t kick in.

So yes, I side with your wife on this one. Just follow the Baby Steps plan. Have all your debts paid off, except your house, and a three to six month emergency spending fund saved and set aside before you embark on a long-term investment. Many people will tell you that my method is not mathematically correct, but it will work better in the long run, for your money, your marriage, and other areas of your life!

—David

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