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Message
Postponing 401k contributions to pay of debts
Posted on 11/11/13 at 7:28 am
Posted on 11/11/13 at 7:28 am
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.
Posted on 11/11/13 at 7:33 am to SmellslikeKevinBacon
Interest rates?
Posted on 11/11/13 at 7:39 am to Joshjrn
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.
Posted on 11/11/13 at 7:57 am to SmellslikeKevinBacon
You should pay off the card ASAP.
Posted on 11/11/13 at 7:58 am to SmellslikeKevinBacon
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.
Posted on 11/11/13 at 8:02 am to SmellslikeKevinBacon
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.
Alternative, put in just enough to get the company match and throw anything above that at the debt.
Posted on 11/11/13 at 8:05 am to Chris4x4gill2
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.
Posted on 11/11/13 at 8:32 am to SmellslikeKevinBacon
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.
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.
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.
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.
Posted on 11/11/13 at 8:36 am to foshizzle
I'll look into that. I did not realize that the CC company would be willing to do that.
Posted on 11/11/13 at 8:52 am to foshizzle
Forgive the stupid question but I am not really good with this stuff. My emplyee handbook reads as:
So does that mean I need to contribute a minimum of 5% to take advantage of the company match?
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?
Posted on 11/11/13 at 9:05 am to SmellslikeKevinBacon
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%.
Posted on 11/11/13 at 9:07 am to SLafourche07
That is what I was thinking too. I just wanted to make sure. Thanks.
Posted on 11/11/13 at 9:14 am to SmellslikeKevinBacon
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.
Posted on 11/11/13 at 9:18 am to CQQ
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).
Posted on 11/11/13 at 9:20 am to EA6B
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.
Posted on 11/11/13 at 9:28 am to SmellslikeKevinBacon
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.
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 11/11/13 at 9:29 am
Posted on 11/11/13 at 10:33 am to Ace Midnight
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.
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.
Posted on 11/11/13 at 10:56 am to SmellslikeKevinBacon
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?
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?
Posted on 11/11/13 at 12:13 pm to CAT
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.
Posted on 11/11/13 at 12:23 pm to dewster
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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