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    Lower 401k Contributions

    Should I lower my 401k contributions to help pay off my student loan faster? If I don't it will take maybe a year or till the end of 2015 to pay off. If I lower the contributions I could possibly have it paid off by the end of 2014. I am leaning towards not lowering it but would like other input.

    #2
    I would look at the recent rate of return of your 401K compared to your student loan interest rate. Typically student loan interest rates are pretty low, so it might not be worth it. I did lower my contributions to pay off credit card debt, but still contribute enough to get my maximum company match. If you do decide to decrease your contribution, make sure you get the full match - you don't want to give away free money!

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      #3
      Originally posted by skives View Post
      Should I lower my 401k contributions to help pay off my student loan faster? If I don't it will take maybe a year or till the end of 2015 to pay off. If I lower the contributions I could possibly have it paid off by the end of 2014. I am leaning towards not lowering it but would like other input.
      It depends... We need more information to discuss it further.

      What is your student loan balance and interest rate?

      What is the % you are contributing now?

      What % does your employer match if any?
      ~ Eagle

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        #4
        Who says that you have to do one or the other? Why not a combination?

        How much student loan debt do you have? How much of your income are you putting into your 401k? Do you have an emergency fund?

        Generally speaking, it is recommended that you put 15% of your income into retirement savings. I would say between 10% and 15% is fine if you are younger (in your 20's). If you are only putting between 10% and 15% of your income into your 401k, then you may want to stick with it. If you are putting more of your income in, then consider reducing.

        You certainly do not need to go all or nothing with your 401k or student loans. You can do a little of both. Long-term, I think it is advantageous to do a bit of both. That way not only do you pay off your loans, but you also set the habit of investing for the future.
        Check out my new website at www.payczech.com !

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          #5
          skives, I'd definitely pay debt before I save (or put more money paying debt than in savings). This is because loan rates are higher than savings rate.

          re retirement, I would caution putting more to it until you purchased a home. This is because you get penalized by borrowing from your own money on 401K for your downpayment for the house.
          Kill the debt, before it kills you!

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            #6
            Originally posted by Randomsaver View Post
            skives, I'd definitely pay debt before I save (or put more money paying debt than in savings). This is because loan rates are higher than savings rate.

            re retirement, I would caution putting more to it until you purchased a home. This is because you get penalized by borrowing from your own money on 401K for your downpayment for the house.
            I respectfully disagree.

            First of all, savings rates are likely to be higher than student loan rates. Last year in 2013, I averaged about 25% return on the assets that I manage for myself, and my niece/nephew's college funds. Student loans (when I had them early last year), were at a rate of about 3%. Granted, that was a variable rate. Student loan rates rarely go over the federal rate of 6.8% APR, unless they are in default or are given to a really high risk borrower.

            Now, I am not saying that people should borrow in order to invest. I am simply pointing out that rates of return have been pretty darn good for the past few years. That does not mean that rates will be good going forward, especially if you adjust for risk, but it is possible.

            Secondly, investing for retirement is a necessity. Buying a house is a luxury. Pulling money from a retirement account in order to help make a down-payment on a house is a dumb idea. Period. Regardless of any penalties. So while I agree with your stance against pulling money from retirement, I disagree that the OP should have to "caution' themselves. Plain and simple: investing for the future is higher on the priority list and we should be educating people to understand that and act on it.

            Most people are best served saving 15% of their income for retirement, AND saving for a down-payment completely separate from retirement. Would I recommend that one invest more than 15% of their income? Maybe. It depends on whether or not they have debt and what their goals are. Some people are perfectly fine renting in perpetuity. If I lived in New York for example, I would probably be a perpetual renter.

            I do not agree that the OP needs to be "cautious" about saving too much and running the risk of drawing money for a house. Just because someone saves a lot for retirement does not mean that they are likely to draw on the money for something like a down-payment. I believe the leading reason that people draw on their retirement assets is having too much debt. Based on what the OP has said, I do not think this is an issue.
            Last edited by dczech09; 04-26-2014, 10:33 AM.
            Check out my new website at www.payczech.com !

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              #7
              Yeah, I think you should. It's important to student loans paid off as fast as possible, since the interest rates are so insanely high. The longer you wait to pay off student loans, the more money you waste on those interest rates. Get out of debt as fast as you can. Your 401k will be there when you're done, and you should be fine as long as you contribute to it after.

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