Postponing 401k contributions to pay of debts | TigerDroppings.com

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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
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Postponing 401k contributions to pay of debts


Would it be a smart move to postpone my 401k contributions to pay off debt? I have a student loan, two car notes, and a credit card bill that i am trying to get rid off. Right now i have a plan to have all of these paid off by Spring of 2016. If i held off on my 401k contributions(15%) I know I could knock it out a lot quicker. I'm 34 and I am sick of having these debts hanging over my head.






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Joshjrn
LSU Fan
Baton Rouge
Member since Dec 2008
5725 posts

re: Postponing 401k contributions to pay of debts


Interest rates?





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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
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re: Postponing 401k contributions to pay of debts


They vary. the student loan is @ 6%, Credit card is around 19%, one car loan is 6% and the other is 1.9%. The credit card is the main one i want to get rid of. I had hard times where I had used it almost to the max. And now I have a big (to me) balance on it.





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TheDiesel
LSU Fan
Houston via Baton Rouge
Member since Feb 2010
2411 posts

re: Postponing 401k contributions to pay of debts


You should pay off the card ASAP.





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EA6B
Navy Fan
TX
Member since Dec 2012
1242 posts
 Online 

re: Postponing 401k contributions to pay of debts


If your employer matches your contributions, I would contribute enough to the 401k to get 100% of the employer matching funds, and then attack the debt with whatever extra money I had. Don't walk away from free money.





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Chris4x4gill2
Alabama Fan
North Alabama
Member since Nov 2008
1925 posts

re: Postponing 401k contributions to pay of debts


I would quit the 401K for now and get the debt paid ASAP. You have an identified time line so its not stopping the 401K indefinately. You have a schedule and a goal. 2 years no retirement is not going to kill you in the end.

Alternative, put in just enough to get the company match and throw anything above that at the debt.






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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
 Online 

re: Postponing 401k contributions to pay of debts


Thanks. That is what I am going to do. I just wanted to make sure that I would not be hurting my retirement fund too bad.





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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
29698 posts

re: Postponing 401k contributions to pay of debts


Return on investment is pretty important here. Always get the 100% match if your employer offers one, that is literally doubling your money and even beats the return from paying off your credit card debt. Wanting to pay that off makes sense but you should be able to call your card issuer and get it reduced quite a bit unless you've been late on your payments. Give it a shot, it costs nothing to try.

quote:

the student loan is @ 6%

quote:

car loan is 6%


The 401 match definitely beats both of these too. Contributing extra to the 401 is a closer decision, but I'd probably still elect to pay off the debt, since a 6% guaranteed after-tax return is hard to beat.

quote:

the other is 1.9%


Do not pay this off early ever - that is about the rate of inflation and therefore is basically free money.

Bottom line - take advantage of the employer match first. And unless you can pay off the credit card debt in a single check, call them and ask for a rate reduction while you do pay it off.

I can understand the desire to be debt-free and all but you are costing yourself money if you don't take advantage of an employer match.






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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
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re: Postponing 401k contributions to pay of debts


I'll look into that. I did not realize that the CC company would be willing to do that.





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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
 Online 

re: Postponing 401k contributions to pay of debts


Forgive the stupid question but I am not really good with this stuff. My emplyee handbook reads as:
quote:

Company will make a matching contribution equal to 100% of the first 3% of your pay that you contribute to the plan on pre tax basis, and 50% of the next 2%


So does that mean I need to contribute a minimum of 5% to take advantage of the company match?






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SLafourche07
New Orleans Pelicans Fan
Member since Feb 2008
1307 posts

re: Postponing 401k contributions to pay of debts


It looks like if you put in 3% then they will put in 3%. If you put in 5% then they will put in 4%.





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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
 Online 

re: Postponing 401k contributions to pay of debts


That is what I was thinking too. I just wanted to make sure. Thanks.





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CQQ
New Orleans Saints Fan
LC
Member since Feb 2006
11219 posts

re: Postponing 401k contributions to pay of debts


I would at LEAST put in that first 3%, preferably 5% to take advantage of the free money. I am trying to tackle my wife's student loans but I'm not about to not put in my 6% as my company matches that $1 for $1. Growing at roughly 20%, it's a no brainer.





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Anfield Road
Mississippi St. Fan
Rocket City
Member since May 2012
898 posts

re: Postponing 401k contributions to pay of debts


I'd take the match. The match is so great that even if you were in the highest tax bracket you'd come out ahead if you were to take the money and then immediately withdraw it (incurring early penalties).





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Ace Midnight
LSU Fan
Ball, LA - Home, Sweet Home
Member since Dec 2006
29107 posts

re: Postponing 401k contributions to pay of debts


quote:

If your employer matches your contributions, I would contribute enough to the 401k to get 100% of the employer matching funds, and then attack the debt with whatever extra money I had. Don't walk away from free money.


I'm a Dave Ramsay guy, but I'm here with this - and I have heard Dave say on the radio show to give the minimum to get the match during Baby Step 2. However, on the website, he says "no" - I guess it is more of a psychological approach (the whole thing is, really), when you're at Baby Step 2 - you're "all in" on the snowball.

I see the advantages both ways, but I hate to walk away from free money.






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dewster
Maryland Fan
Tennessee
Member since Aug 2006
9002 posts

re: Postponing 401k contributions to pay of debts


Pay off the card. That's the highest priority.

If you can do that while still getting the min for your employer match then that's the route you go.



This post was edited on 11/11 at 9:29 am


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LSUtigerME
LSU Fan
Walker, LA
Member since Oct 2012
539 posts

re: Postponing 401k contributions to pay of debts


Since your employer contributes 4%, put in at least the 5% to match it. If you can't live without that money, put it in "after-tax" get your match, then withdraw your contribution. That way you still get your match by basically contributing nothing. Take the free money when it's available.

As for the rest of the strategy, pay off the CC ASAP. Don't contribute extra to any of the others until it's paid off. As for the others,
I'd consider going back to 401k before paying them off. Student loans should be tax deductible, and interest rates are low enough that you should be able to outpace them.






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CAT
LSU Fan
Central Arkansas
Member since Aug 2006
5446 posts

re: Postponing 401k contributions to pay of debts


I'd do the 3% to get the match and then hit the debt.

I listen to Dave Ramsey as well and have heard him say keep the match (usually qualifies this with how much person makes).

Can you sell one of the cars and get a cheaper one to pay off everything sooner?






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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
 Online 

re: Postponing 401k contributions to pay of debts


i folllow Dave Ramsey's plan somewhat. I am using his "snow-ball" method. We drive sensible vehicles (civic & a wrangler) they are just new, so the loans are new. i am not willing to sell either to free up money. I drove a beater for 5 years before deciding to get a jeep and by my wife a new car. It's just that I have been having this credit card debt hanging over me for a long time and i am sick of it. So I came up with a schedule to get rid of all debt minus the mortgage. We are doing ok with our current income on paying off the debt. We had other debts that we have paid off. These are just he last of the debts we owe and I was thinking about how I could speed up the process even more.





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SmellslikeKevinBacon
LSU Fan
Louisiana
Member since Dec 2012
2066 posts
 Online 

re: Postponing 401k contributions to pay of debts


i agree i feel like the card never goes away. I was not responsible with it when i first got it and ran it up. Then I realized my mistakes and paid half of it off. then my car broke down and I put the repair bill on the card, which was just about equal to what i paid off. I have been making minimum payments while paying off other small debts the wife and I have. It seems like the balance doesn't move though. So now I am getting serious about it.





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