From: "Bucky" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Wise use of inheritance?
Date: 19 Apr 2005 23:20:05 GMT
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> 2)  Does the relative security of my job change the thoughts on
paying
> off the 401K?  I considered this to be my WORST debt to pay off,
> because of its fixed low interest rate (5%).  I agree that getting
rid
> of this puts the money back in equities, but wouldn't the effective
> interest GAINED have to offset both the 5% and the interest that
still
> exists on the HELOC from not using the 12K against it?

The interest rate on your 401K loan is irrelevant to your net gains. It
doesn't matter whether it's 1% or 25%. You're paying yourself, so it's
out of the equation.

http://www.mtgprofessor.com/A%20-%20Second%20Mortgages/second_mortgage_versus_401k_loan.htm

The correct comparision to make is the return of the 401K portfolio vs
the HELOC rate. Your HELOC is 7% (~5% after tax adjustment). So if you
expect your 401K portfolio to beat 5-7%, then you should pay off the
401K first. However, your HELOC rate will probably rise, so it wouldn't
be a bad idea to pay that off first.