Stop 401k to pay debt?

[Starry436]

I will admit, when it comes to retirement, investing etc. Myself and husband are clueless. We are 26 and I just started my 401k a year ago after getting comfortable in my full time job after college. My husband has been contributing since 21.

We've been debating either stopping or lowering our contributions to work on paying off debt. Except, we are conflicted on this for obvious reasons.

Debt:
17k vehicle one 1.9%
18k vehicle two 4%
14k student loans

Contributions
Me: 3% employer matches 10% per dollar $1
Husband: 5% employer matches 100% up to 6%

My contribution using comes to around $50 a pay period and my husband's around $100.

Any advice?

Thanks

[james.hendrickson]

Starry, this one is easy.

Be sure you maximize your 401k contributions. You'll get the tax benefits, the employer match as well as the satisfaction of knowing you have savings in the bank.

[disneysteve]

We need more info to give a complete answer but the general rule is to contribute to the 401k at least to the extent that you get the full company match otherwise you are essentially turning down free money.

Your car loans really jump out at me from your post. That's a huge amount but I don't know how much you earn so I don't have any perspective. The student loans aren't bad at all, but again, it depends on the overall picture.

[Starry436]

We need more info to give a complete answer but the general rule is to contribute to the 401k at least to the extent that you get the full company match otherwise you are essentially turning down free money.

Your car loans really jump out at me from your post. That's a huge amount but I don't know how much you earn so I don't have any perspective. The student loans aren't bad at all, but again, it depends on the overall picture.

Combined around $80k a year. The vehicles are sucking up about $740 month income. Such stupid decisions and it makes me sick to see that debt now. I'm brainstorming any idea's to get rid of it or at least one by next year. We've tried selling the 17k one, but our location is so small no one wants it. It's a 2016, and we have about 5k positive equity in it. Student loan is about $120 month now, but will increase every 2 years.

[MonkeyMama]

I would increase husband's 401k (by 1%) to get the full match.

Are you saying you are matched 10% of what you contribute to 401k? Or are you matched 10% of your salary?

[kork13]

I agree, you should continue contributing to the 401k's at least up to the maximum match that your employers will provide... Don't turn down free money.

If you're already doing exactly that, and still want more free cash to attack debt, you've got 2 general options: Reduce your expenses, or boost your income.

On the income side--are either of you able to take on a second/side job, or pick up some overtime? Anything will do, income is income.

Expenses tend to be an easier target, though it can be difficult to initially start into. Can you cut your cable, or change your cell phone plan/carrier? Increase the deductibles on your insurance, reduce (or eliminate) eating out, reduce your grocery costs (go with store brands, or change what you're eating to more basic staples that are cheaper), .... that sort of thing. You haven't laid out your expenses yet, but the more you're able to trim from your spending, the more you'll have for debt payoff. It's like paying yourself!

[Starry436]

I would increase husband's 401k (by 1%) to get the full match.

Are you saying you are matched 10% of what you contribute to 401k? Or are you matched 10% of your salary?

If I put in $50 they give me $5. I'm really not well educated on this subject but I can see my company's benefits are not great.

[MonkeyMama]

If I put in $50 they give me $5. I'm really not well educated on this subject but I can see my company's benefits are not great.

Okay. The spouse's retirement benefit is too good to pass up. Presuming the retirement plan has good investment choices and the fees are not horrible.

Your retirement benefit is a lot more "meh". That said, I think you would be better served cutting other expenses and seeking out more income, than messing with retirement. But some part of me thinks it's okay to scale back on the "meh" retirement benefit, but I also know I'd have the discipline to put ALL that money to retirement in the future (the monthly payments, once loans are paid off). If you can commit to something like that, it may be worth considering. & not that it all has to go to retirement, but it's good to get to a point where you put at least 10% of all income to retirement. Your future self will thank you.

I guess I am okay with the "I messed up and have to go drastic to fix things" method when you are only in your 20s. It just depends how serious you are about it. It's pointless if you just end up back at square one again.

[Starry436]

Okay. The spouse's retirement benefit is too good to pass up. Presuming the retirement plan has good investment choices and the fees are not horrible.

Your retirement benefit is a lot more "meh". That said, I think you would be better served cutting other expenses and seeking out more income, than messing with retirement. But some part of me thinks it's okay to scale back on the "meh" retirement benefit, but I also know I'd have the discipline to put ALL that money to retirement in the future (the monthly payments, once loans are paid off). If you can commit to something like that, it may be worth considering. & not that it all has to go to retirement, but it's good to get to a point where you put at least 10% of all income to retirement. Your future self will thank you.

I guess I am okay with the "I messed up and have to go drastic to fix things" method when you are only in your 20s. It just depends how serious you are about it. It's pointless if you just end up back at square one again.

Being vehicle poor is something I never want to get back into again. Once these are paid off, they will be ran until they don't run anymore. I'm so tired of a vehicle payment it's unreal. My mom consigned me for a new one at 18 and I've been stuck with payments since due to bad decisions and no education on what it means to be in debt. I'm so done with this stupid phase.

I am very paranoid of having no money in savings. I watched my mom not have any money for us to eat because she saved nothing and spent everything. So I am very mindful of always having some kind of cash to fall back on but it's never been enough to pay anything off. But we had the stupid mindset of we can afford the payments as many Americans do. But we can't. $740 in vehicles a month is plain dumb and we're kicking ourselves for it. If I take the extra $50 a check from my 401k and put it towards the car. That gives an additional $100 towards getting it gone. It's like my only focus is to get it gone. I'm looking at part time jobs but so far I can't find anything that's not conflicting with my full time in our small area.

Husbands retirement looks to be performing very well, according to my father. Mine however he says is pathetic.

I feel like we've hit a brick wall. Debt sucks.

[james.hendrickson]

Being vehicle poor is something I never want to get back into again. Once these are paid off, they will be ran until they don't run anymore. I'm so tired of a vehicle payment it's unreal. My mom consigned me for a new one at 18 and I've been stuck with payments since due to bad decisions and no education on what it means to be in debt. I'm so done with this stupid phase.

I am very paranoid of having no money in savings. I watched my mom not have any money for us to eat because she saved nothing and spent everything. So I am very mindful of always having some kind of cash to fall back on but it's never been enough to pay anything off. But we had the stupid mindset of we can afford the payments as many Americans do. But we can't. $740 in vehicles a month is plain dumb and we're kicking ourselves for it. If I take the extra $50 a check from my 401k and put it towards the car. That gives an additional $100 towards getting it gone. It's like my only focus is to get it gone. I'm looking at part time jobs but so far I can't find anything that's not conflicting with my full time in our small area.

Husbands retirement looks to be performing very well, according to my father. Mine however he says is pathetic.

I feel like we've hit a brick wall. Debt sucks.

Starry, have you read Dave Ramsey? He is one of the "go-to" sources for debt reduction.

Also, another thought - are there any easy wins you could go after? Like selling some jewelry to pay off a chunk of the car loan?

[disneysteve]

We've tried selling the 17k one, but our location is so small no one wants it. It's a 2016, and we have about 5k positive equity in it.

I find it hard to believe that you can't get out of a 2016 car in which you have 5K of positive equity. If you live in a small town, cast a wider net. People buy cars online from all over the country. I personally know several people who have driven hundreds of miles to pick up cars they bought online.

If you owe 17K and have 5K in equity, that means the car is worth 22K. List it for 20K or 19K and somebody will snatch it up.

[disneysteve]

Your retirement benefit is a lot more "meh".

It's certainly not the 50% match we often talk about, but even a guaranteed 10% return is kind of tough to pass up. Especially if you're sacrificing 10% so you can pay down a 4% car loan.

OP didn't mention the interest rate on the student loans. If they are Federal loans at 6+%, it might not be a bad idea to attack those.

[Starry436]

It's certainly not the 50% match we often talk about, but even a guaranteed 10% return is kind of tough to pass up. Especially if you're sacrificing 10% so you can pay down a 4% car loan.

OP didn't mention the interest rate on the student loans. If they are Federal loans at 6+%, it might not be a bad idea to attack those.

The highest one is 6.8% at $2200 or so. The rest are under 4%.

[Petunia 100]

Being vehicle poor is something I never want to get back into again. Once these are paid off, they will be ran until they don't run anymore. I'm so tired of a vehicle payment it's unreal. My mom consigned me for a new one at 18 and I've been stuck with payments since due to bad decisions and no education on what it means to be in debt. I'm so done with this stupid phase.

I am very paranoid of having no money in savings. I watched my mom not have any money for us to eat because she saved nothing and spent everything. So I am very mindful of always having some kind of cash to fall back on but it's never been enough to pay anything off. But we had the stupid mindset of we can afford the payments as many Americans do. But we can't. $740 in vehicles a month is plain dumb and we're kicking ourselves for it. If I take the extra $50 a check from my 401k and put it towards the car. That gives an additional $100 towards getting it gone. It's like my only focus is to get it gone. I'm looking at part time jobs but so far I can't find anything that's not conflicting with my full time in our small area.

Husbands retirement looks to be performing very well, according to my father. Mine however he says is pathetic.

I feel like we've hit a brick wall. Debt sucks.

No, it won't. It will give you 100 x (1 - your tax rate) extra per month.

Do you have a written budget? If not, it is time to start. Figure out where all of your money is going and see what can be eliminated or reduced. If yes, if you are willing to share it here, you may get some ideas you like better.

The place to start cutting is NOT your retirement contributions, which are already very low.

And what do you mean by you have 5k of equity in the car but you live someplace too small to sell it? Advertise in a bigger town, then. Sell the car, take the equity and buy something outright, then use the money you were spending on that car payment towards your other debt.

[disneysteve]

The place to start cutting is NOT your retirement contributions, which are already very low.

That is so often the "solution" we see posted here when it should really be your last resort. You borrowed over $35,000 to buy cars. The answer isn't skipping retirement savings. The answer is to replace the cars with ones you can actually afford. My daughter bought her first car last year. It was $5,000 and works just fine. It takes her everywhere she needs to go.