401k or pay down debt?

[SunnyD]

With my job, over the last three months since I started I had set up to take advantage of the 401k program. 50% match up to 6%, which amounts to ~$180 a paycheck of my money going into the 401k if I recall.

Here's my situation - the budget is tight with a little wiggle room as set up right now. So I don't really have to drop the 401k. My question is, would I be better off suspending my contribution and using that money to pay down existing debt first, and then start up the 401k again later?

Currently my debt load is approximately:
Student loans: ~$30,000
Car loan: ~$18,000
Credit cards: ~$2,500
Misc. Debt: ~$8,000 (including some delinquent accounts - this is an off the top of my head estimate)

I have never really cared about my credit score, nor do I even know what it is. Basically though, with this economic climate I'm wondering if I should take care of the specter of debt sooner in lieu of the 401k.

Opinions?

 

[spidey07]

By all means max out the 401k. At these prices you'll be way ahead of any debt you listed. If you suspend it you could be throwing away 100,000 dollars or more.

 

[Delita]

I'd contribute to the 401k up to the matching. You're getting free money there. After that exhibit some self control and pay down that debt.

 

[Diz2K2]

If you decide to make a significant purchase in the future (home, start a biz, etc.) then the credit score will definitely come into play. It may have affected your car loan. The student loan is not really considered a bad debt. I would try to invest in the 401k and work on the debt particularly the credit cards.

 

[daveshel]

I'd pay off the debt. Your debt service is probably costing you more than the 401k would earn right now.

 

[DisgruntledVirus]

Originally posted by: spidey07
By all means max out the 401k. At these prices you'll be way ahead of any debt you listed. If you suspend it you could be throwing away 100,000 dollars or more.

Exactly.

The market is quite low right now. You will buy lots of stock for cheap, and when it rebounds (even if it's only $1-2 increase in per stock prices) you will benefit much more from it.

 

[SunnyD]

Originally posted by: Diz2K2
If you decide to make a significant purchase in the future (home, start a biz, etc.) then the credit score will definitely come into play. It may have affected your car loan. The student loan is not really considered a bad debt. I would try to invest in the 401k and work on the debt particularly the credit cards.

Credit cards are no longer in play for me. I don't use them period, and am on fixed payment plans to get them paid off. In fact one of them will be done in April.

 

[SunnyD]

Originally posted by: DisgruntledVirus

Originally posted by: spidey07
By all means max out the 401k. At these prices you'll be way ahead of any debt you listed. If you suspend it you could be throwing away 100,000 dollars or more.

Exactly.

The market is quite low right now. You will buy lots of stock for cheap, and when it rebounds (even if it's only $1-2 increase in per stock prices) you will benefit much more from it.

Speaking of which, I just got my $90 from Sharebuilder from the Costco promotion. Any suggestions what to invest that $90 in stock-wise?

 

[JDub02]

take the free money. that more than offsets any interest you're paying on your debt.

 

[ViviTheMage]

Originally posted by: daveshel
I'd pay off the debt. Your debt service is probably costing you more than the 401k would earn right now.

Think long run...when things pull out of the gutter, he will be sitting pretty good...also, pay off that debt as fast as you can, interest sucks!

 

[DisgruntledVirus]

Originally posted by: daveshel
I'd pay off the debt. Your debt service is probably costing you more than the 401k would earn right now.

Maybe.

Per the OP he pays $180/per pay into it, and the employer matches 50%. That means he gains $90/per pay of "extra" money. If it's bi-weekly then over a one year period (26 pay periods) op gets an extra $2340 from his employer.

The car loan and student loans are not really considered "bad debt", even though they are debt. OP has low CC balance, and not horrible amounts of "misc debt". Provided OP exhibits control of spending and works to pay down the CC and misc debts the 401k is the better route. Especially when the economy recovers.

Put as much as you can up to company match in 401k for the free money from your employer. Then work your ass off to live off whats left and stop extra spending so you can pay down your debts (CC/misc debt first based of interest/late fees of high to low, then car, then student loans). Once one thing is paid off, throw that money at the next debt.

edit: the only way I might consider holding off for the 401k, would be if I pay over $180/mo in late fees/interest on the CC+misc debts. Even then though, with the economy the way it is I would do 401k first as long as your job is safe and have a "rainy day" fund.

 

[DaveSimmons]

If it's a regular 401k you get $90 in free matching money and another 20%+ in tax savings. Even if your debt was at 20% you'd come out ahead.

Keep the 401k and cut back on luxuries as much as possible to also pay down the debt.

 

[SP33Demon]

Say fck the misc debt/credit cards (off record in 10 years anyway) and do the 401K. Obv you have to pay car and student loans, but in 7-10 years you'll come out ahead.

 

[dullard]

If I understand your numbers correctly, you owe nearly double what you make in a year. At that point, many people would choose bankruptcy (a good rule of thumb is that bankruptcy is an option if you owe more than what you make in a year and if you owe more than say $20k). That isn't to say that you should do it, especially if you can make the payments. In fact, I applaud you for not going down that path. But, I do want to point it out to show how deeply you are in debt.

Financially, paying for the 401k is the best option. Free money is free money. Even if the stock market falls, you'll still likely come out ahead of paying the debt.

But, you might want to start learning to live relatively debt free. If so, take this opportunity to pay off the bills. Tackle the misc. debt that is coming due, then the CCs, then any other misc. debt, then the car loan. Leave the student loan as it is (make the minimum payments though). If you can learn to do this, then that lesson is far more valuable than a little 401k match.

However, if you think you might treat your new debt free life with a spending spree, then you just destroyed everything you worked hard for. In that case, choose the 401k and let your massive debt keep your spending in check since you won't. Note: I'm not saying that this applies to you. Only you can decide. But it does apply to many people who owe more than they make in a year.

 

[SunnyD]

Originally posted by: dullard
If I understand your numbers correctly, you owe nearly double what you make in a year. At that point, many people would choose bankruptcy (a good rule of thumb is that bankruptcy is an option if you owe more than what you make in a year and if you owe more than say $20k).

No, I don't owe more than I make (gross).

 

[GasX]

My advice is the sell your car and buy something small used an reliable for less than $10k. Put what even change is left into your student loans and keep the 401k.

 

[dullard]

Originally posted by: SunnyD
No, I don't owe more than I make (gross).

Sorry, I assumed monthly checks. I wasn't thinking other payment forms. Is it twice a month or every two weeks? My bad.

 

[acheron]

Keep the 401k up to the match, and put the rest towards the debt.

 

[NoShangriLa]

Go for the 401K and at that rate you get about $4500 more from the employer per annum. And try to cut down on expense. 58K of out standing debt at 6.5% average interest is $3770 a year.

 

[Sho'Nuff]

At a minimum, put in the amount necessary to get the full 401k match. Where else are you going to get a guaranteed 50% return on investment?

 

[rasczak]

howmuch wiggle room do you have to put into your credit cards? after cutting back on some services I found an extra $200 bucks a month that I'm now able to put towards my debt. at this rate i should have all of my debt cleared by late next year. **keeps fingers crossed**

good luck.

 

[SunnyD]

Originally posted by: dullard

Originally posted by: SunnyD
No, I don't owe more than I make (gross).

Sorry, I assumed monthly checks. I wasn't thinking other payment forms. Is it twice a month or every two weeks? My bad.

Two weeks.

Originally posted by: Mwilding
My advice is the sell your car and buy something small used an reliable for less than $10k. Put what even change is left into your student loans and keep the 401k.

Not going to happen. As with any vehicle, I'd likely end up with a loss on the sale/rebuy at this point in time.

 

[TallBill]

Originally posted by: acheron
Keep the 401k up to the match, and put the rest towards the debt.

This, but I'd probably pay the high % debt first. I also wouldn't spend $18k(or more) on a car if I had so much debt. Then again, I wouldn't spend $18k on a car if I had a million bucks sitting in the bank.

 

[Duddy]

I lowered my contribution to around 3% so that I can catch up on some debt. Will bring it back to 9% after the tax season.