Quote:
Originally Posted by ceejay74
This is a really interesting subject! I've kept putting a minimal amount (6%) into my 401(k), even when my employer stopped the matching program. I have my husband put the minimum needed to get his matching at work. And I put aside $120 per month for my partner who's currently unemployed, just because it feels really weird not to have her building retirement at all.
But I've considered whether I should up those contributions or not...By next month, I'll have eliminated another high-interest (8.99%) debt, and then my highest-interest debt will be a student loan that's at 6.8%. I still have a lot of debt but the rates are all low: 6.8%, 6.55%, 4.5%, 3.99%, 3.9%, 3.875%, 2.5%, 1.49%, 0%. Also, all but one are either mortgage or student loan, so they all have tax benefits associated.
At what point does the compound factor of retirement outpace the interest you pay on debt? Does that make sense? Or does the interest on debt compound negatively at the same rate? Can you tell I don't know what I'm talking about??
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I missed this post when making my earlier reply...
this is a good example of my previous post...
what is your GOAL?
if goal #1 is to be debt free, then its obvious to chase the 6.8% debt... however I believe you have hit the tipping point where investing sooner helps you with most goals which have a 10-20 year time horizon.
If a debt payment is $600/month and you would pay "$400 extra" as a guess, you need to weigh the following factors:
1) If you paid $600/mo, when is projected debt payoff?
2) If you paid $1000/mo when is projected debt payoff?
3) is a delta (measure it in months for simple math)...
If you paid $1000/mo, how much do you "save" in interest? (The lower the interest rate, the less this savings is).
Then ask more questions
and make a timeline
If you paid $600/mo and invested $400/month
in 60 months debt is paid off
in 60 months you have $24,000 saved or invested
in 72 months you have $36,000 saved or invested (next 12 months is $1000/month invested)
If you paid $1000/mo
in 40 months you would have $0 saved
in 60 months you would would have $20,000 saved
in 72 months you would have $32,000 saved or invested
In this example, it shows investing gives higher savings 72 months from now. This example is really simple, with made up numbers, you need to plug better numbers in...
and this gets more detailed if you add in interest paid or interest earned (I am not adding that in to keep it simple).