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What would you do? -- ADVICE NEEDED!!

April 26th, 2009 at 01:04 am

I currently contribute $200 per month to my 401k, which gets me a company match of $100. I've been reading advice from various financial gurus (Dave Ramsey, etc.) saying if you have credit card debt (which I do) and a small or non-existent emergency fund (which I do ... a small EF that I am currently working on building up) that you should suspend 401k contributions temporarily and use that money to pay off debt/save. Hearing this advice spurred me to do some research, and I came up with the following options.

(Note: I used the debt reduction calculator found on this website to calculate all the schedules used in the following options; it was really cool, and you can find several other calculators there as well.)

Option 1: Staying the course. I currently pay $300/month towards my CC debt, and I have not incurred any new debt in 1.5 years. Not including any windfalls I might receive, and not taking into consideration any changes in my current APRs, at the rate I am going I won't pay off my CC debt until July 2012.

Option 2: Cut my 401k contributions in half, giving me an extra $100/month to put towards my CC debt. I would shave one year off my current timetable and be done by June 2011.

Option 3: Cut my 401k contributions entirely and put that $200/month towards my CC debt, paying it off in December 2010.

Option 4: Cut my 401k contributions entirely and put $100/month towards my CC debt and $100/month in savings. (I currently have $130/month set up to go into savings.)

Please give me your input and help me decide!

4 Responses to “What would you do? -- ADVICE NEEDED!!”

  1. Nika Says:

    I would not forgo the match. $100 match on a $200 investment - it is a 50% return right there! That is before you calculate your tax savings. You just can't beat that. I would contribute to get the maximum match, even in your situation.

  2. baselle Says:

    I consider the 401K bennie to be sacred, so I'd prefer not to pick. But I would like to plant a couple of thoughts--

    Per your Jan 24 entry - ask a co worker whose been on job for a few years whether that 30% additional match is a once in a blue moon thing or a yearly usual. That match is sweeter than many others and that money is lost to you if you stop your 401K. Definitely want to assess how safe that match is. If the match is in danger, dropping the 401K seems a bit more palatable.

    Dropping the 401K will also increase your taxable income, so it would change your 2010 taxes. If you are counting on a tax refund to help pay the credit card, if you drop the 401K, then that refund will probably drop, or worse you'd owe. It would totally suck if you had to use a credit card/savings to pay your 2010 income tax because of no 401K.

  3. homebody Says:

    I would contribute $100.00 to get the match. Then I would free up some more money somewhere in my budget to save an adequate emergency fund, then pay down the debt as quickly as I could.

  4. Ima saver Says:

    I agree with homebody. Still contribute the $100, get the match and save the other $100 in your emergeny fund.

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