do a 401k even if you have outstanding CC bills?

[Homerboy]

It just doesn't make sense does it? One shouldn't partkae in their companies 401k (matched) benefits program if they have outstanding credit card bills should they? It would be ~$150 to take full advantage of the companies match. But wouldn't that $150 be better off paid towards the CC bills?

 

[Rogue]

I would say, yes, pay into the 401k. While I agree that it's dumb to put away money in savings when you have debt outstanding (especially credit card debt), it's far better to start paying into retirement as soon as possible due to the amount of money and the long term of the investment. That one year you DON'T pay into 401k while you're paying off debt could add up fast. At least contribute the minimum amount until your credit card debt is paid off.

DISCLAIMER: I'm no investment banker, accountant or anything else. The above response was based solely on common sense and some personal experience.

 

[TGS]

Pay off debt now, then it will free up capital for investing towards retirement, and future investing. Paying into a 401k so you can get a small % match is pointless if you are paying a much larger short term interest %. Get rid of you debt then start to pay into retirement options.

 

[mugs]

Originally posted by: TGS
Pay off debt now, then it will free up capital for investing towards retirement, and future investing. Paying into a 401k so you can get a small % match is pointless if you are paying a much larger short term interest %. Get rid of you debt then start to pay into retirement options.

Well... if the company matches his contributions dollar for dollar, that's an instant 100% return on investment...

 

[Homerboy]

edited and added poll

 

[Yossarian]

company match = free money!!! you would have to have a seriously absurd CC interest rate for it to work out in favor of paying off the CC.

 

[NumbersGuy]

If the company is matching your contribution, definitely. Your rate of return is 100% while paying 18%.

Of course if things are very tight, say you are on a first name basis with the collectors, plan how to eliminate the debt (1. Cut cards in half) and do the 401 if anything is left.

If you are a young guy, 2-3 years won't make a great difference. Good luck!

 

[Night201]

Don't forget about compound interest. You'll be losing all that money compounded over all the years. How much debt do you have? What is the interest rate? what is the company match? Can you provide more info...

I would keep putting into the 401k - enough to get the match (remember that is free money) - with the free money (25% - 50% sometime) - which is way more than your interest rate hopefully - not to mention the extra compound interest you'd make on $1800 (150 x 12 months if you have that much debt) over the span of x years...

Edit: I should also say, if you are putting money into any other types of investment - stocks, mutual funds, etc - stop. Put that money towards the 401k.

 

[BlueWeasel]

Originally posted by: Yossarian
company match = free money!!! you would have to have a seriously absurd CC interest rate for it to work out in favor of paying off the CC.

Yup

 

[Hammer]

instant 100% ROI vs avg 14% savings paying into CC

do the math.

 

[Pepsei]

company match = free money!!!!! even if it is only 50% match. it is still better than bad credit card interest rate.

 

[HonkeyDonk]

Originally posted by: NumbersGuy
If the company is matching your contribution, definitely. Your rate of return is 100% while paying 18%.

Of course if things are very tight, say you are on a first name basis with the collectors, plan how to eliminate the debt (1. Cut cards in half) and do the 401 if anything is left.

If you are a young guy, 2-3 years won't make a great difference. Good luck!

actually, 2-3 years can make a helluva lot of difference depending on how much money you have.

If you save money for like 40 years, those extra 2-3 years in the beginning can increase your final return dramatically.

 

[alent1234]

BT your CC bills to low rate cards and max out the 401k. On the 401k you get an instant return in the form of a company match and/or the tax savings. I stopped my 17% 401k contributions once for 2 months and the savings were very small.

 

[Homerboy]

specifics: Company matches 50% of my contribution up to 2%. All funds deposited by me are immediately vested, Company funds vest at 20% per year.

Edit: so 4% would get me full value of companys match

 

[DaveSimmons]

If they match 50% "up to 2%" that usually means 50% of the first 0% - 2% of your pay, then nothing for amounts over 2%.

Definitely put in 2%. Then have the self-discipline to actually pay off your CC.

 

[Yossarian]

Originally posted by: DaveSimmons
If they match 50% "up to 2%" that usually means 50% of the first 0% - 2% of your pay, then nothing for amounts over 2%.

Definitely put in 2%. Then have the self-discipline to actually pay off your CC.

don't forget to buy a Vanguard mutual fund after you pay off your CC!!

 

[Noirish]

needs some hard numbers.

personally, if you are in debt, there is no reason to invest because investment growth is generally less than debt growth. unless you have a cc with low interest, a few month carrying balances can wipe out any company match and more.

it's like saying, i'm hungry, i can either use $ to buy food or bank it.

(guess i'm the only odd ball voting NO so far, weird...)

 

[gsaldivar]

Originally posted by: NumbersGuy
If the company is matching your contribution, definitely. Your rate of return is 100% while paying 18%.

Winnar!

 

[Buk]

The only one looking out for you is YOU! Put it into the 401K (pay yourself first) and get used to living on less. You'll be thankful when you reach retirement..........

 

[DaveSimmons]

Originally posted by: Yossarian

Originally posted by: DaveSimmons
If they match 50% "up to 2%" that usually means 50% of the first 0% - 2% of your pay, then nothing for amounts over 2%.

Definitely put in 2%. Then have the self-discipline to actually pay off your CC.

don't forget to buy a Vanguard mutual fund after you pay off your CC!!

Not just any Vanguard.com fund, it must be VFINX

 

[DaveSimmons]

Originally posted by: Noirish
needs some hard numbers.

personally, if you are in debt, there is no reason to invest because investment growth is generally less than debt growth. unless you have a cc with low interest, a few month carrying balances can wipe out any company match and more.

it's like saying, i'm hungry, i can either use $ to buy food or bank it.

(guess i'm the only odd ball voting NO so far, weird...)

You're missing the "employer match" part of a 401k.

You take $100 from your paycheck.

a. You pay off $100 in CC debt, and earn 0-23% return in saved interest
b. You add it to your 401k, and earn 50% instantly from employer match, plus 20-30% income tax savings since 401k contributions are deducted from / reduce the gross income you report to the IRS.

You see why most people are saying (b)?

 

[TGS]

So pay in the 4% to the 401k and the rest to the cards.

Sounds reasonable to me.

 

[EagleKeeper]

AS soon as you unload the CC, add to the 401K to the max allowed.

You will earn the equivalent of your tax rate as interest.

To get an idea, look at last years income and last years tax from your return.
That will allow you to determine the tax rate bracket that you were in.

Any money that you yourself put into the 401K equivalently earns that amount until you become and old fogie.

 

[Homerboy]

And how should I allocate?

Merrill Lynch Basic Value Fund Class B %
Merrill Lynch Bond Fund Class B %
Merrill Lynch U.S. Government Mortgage Fund Class B %
Merrill Lynch Global Allocation Fund Class B %
Merrill Lynch Ready Asset Trust %
Merrill Lynch Value Opportunities Fund Class B %
Merrill Lynch Fundamental Growth Fund Class B %
Merrill Lynch International Fund Class B %
Merrill Lynch Large Cap Core Fund Class B %
Merrill Lynch Strategy Growth & Income Fund Class B %
Merrill Lynch Large Cap Value Fund Class B %
Merrill Lynch Small Cap Growth Fund Class B %

 

[Orsorum]

Originally posted by: mugs

Originally posted by: TGS
Pay off debt now, then it will free up capital for investing towards retirement, and future investing. Paying into a 401k so you can get a small % match is pointless if you are paying a much larger short term interest %. Get rid of you debt then start to pay into retirement options.

Well... if the company matches his contributions dollar for dollar, that's an instant 100% return on investment...