Quote:
Originally Posted by cooliemae
I know this is going against the grain, but I would pay-off the 401k first and here's why
Assuming modest gains (6% per year) on the 401k over the next 25 years the $8000 would turn into $34000.
Assuming you payoff the 401k loan and can apply $400 per month to the credit card loan you will have paid somewhere in the neighborhood of $1000 in interest over the next 2 years.
So because the life of the 401k is so much longer, I would pay it off first and invest the money at the same time you are paying off the loan.
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I'm not in disagreement with this approach, but I would note that this approach requires the assumption of "modest gains (6% per year)" whereas the alternative approach provides a guaranteed return on every dollar. In fact, if the 401k loan were paid down in Q4 of last year or Q1 of last year, they would have lost $ on what they paid back.
There is also the question of whether sitting on the CC debt and allowing it to grow will necessitate a reduction in 401k contributions in the coming months/years (or not funding a Roth, etc...).
In the end I still favor the sure bet of paying off the CC.