401K before credit card debt? or other way around?

[Ima saver]

Re: 401K before credit card debt? or other way around?

I get the 0 % offers on cc 's every day too! I don't think I would borrow from my 401 if I had one.

[MarianneJ]

Re: 401K before credit card debt? or other way around?

I still disagree - Even if you are spending more on credit card interest than your retirement plan is averaging. It is way too easy to say you'll pay off the debt and then start saving for retirement and then never do it because you've run up more debt. Also, you lose all that time which is the name of the game in retirement accounts.

Then again, I am still not out of debt after 4.5 years of this mindset...so my situation is a little different, and definitely colors my view. I am definitely envious of those who can just buckle down and pay off their debt in a year or two.

[meaghanchan]

Re: 401K before credit card debt? or other way around?

I'd put in *something* (even just $50 or $100 a month, or to the company match) to retirement, just to get in the habit, even if you have credit card debt. However, I'd put the rest- and make that as much as possible- towards the credit card debt.

That's what I'm doing- and when the credit cards are paid off, I'll have a big chunk of change every month free to put to either retirement or shorter-term savings.

[Tree0164]

Re: 401K before credit card debt? or other way around?

We had 20k worth of debt and it took about 3.5 years (once we got serious) to get it all paid off. When I was working part-time (I was fully vested) , I contributed to the company match (6%) and so did my husband (6%) who is now fully vested as well.

If your company has a match, keep contributing to your 401k that is free money that the company gives you.

Now that we are credit card debt free, hubby contributes currently 12% to his 401k and I max out a Roth IRA since I am no longer employed.

[LuxLiving]

Re: 401K before credit card debt? or other way around?

I vote for doing both if you can! I think it was David Bach in his 'Automatic Millionaire' that speaks of the psychological benefits of seeing the debt shrinking while at the same time the retirement money is going up!

I get it this way by visualing one debt glass being drained while at the same time the retirement glass is slowly filling.

This is how we did it. We couldn't afford to wait on the retirement funding AND the debt had to go. The Hubster didn't seem to mind/understand the he was leaving matching funds on the table. I couldn't do it. They're offering it and we're refusing to take it? NO WAY! I don't leave my Christmas gifts unopened, why would I leave free cash at work? Guess who won???

We started throwing any extra we could scrape together at the debt while we started him out at 1% of his salary going to the 401-K. He was convinced we wouldn't make it financially doing this - had to promise we'd stop if it got too tight. Well, he never missed a dime of it! We are now up to 9% - soon to go to 10%. We have never missed a meal or been unable to meet our payments.

Find a calculator and see what the actual difference will be in your take home pay. I think you'll be pleasantly surprised!

I think American Funds has one on their website that you can get to even if you don't invest thru them.

Then do as others here have suggested, keep rolling that CC over to lower interest rate cards and keep hammering at it w/every penny you can scrape together. We figured a few austere years would be worth it in the long run. Better now when we are younger and healthier than older and unable to make complicated financial decisions that affect what sits on your plate, what healthcare you can afford! Meaning we can sacrifice more easily now on the MINORS - later we don't want to have to sacrifice on the MAJORS!

But be mindful - like someone mentioned - not all 401Ks are the same - some have terrible funds to choose from. In that case, I would get my matching dollars and then perhaps do more of my retirement investing elsewhere. Yeah, you'd lose some tax advantages BUT if you're not getting a reasonable return or lose all of your investment then I think you'd be better off somewhere else w/your retirement investing.

Do both if you can! Yeah that's the ticket!!

[Ima saver]

Re: 401K before credit card debt? or other way around?

Wow, Lux, I am impressed, to go from 1% to 10% (soon) I agree with you. I would do both. Once you get in that mindset of saving every payday, like I have, you just have to keep it up.

[LuxLiving]

Re: 401K before credit card debt? or other way around?

Ima I just kept ooching him up. His 401 is online and he's okay w/me dinking with it. We went in small increments and it took about a year.
1 Jan 06
3
5
7
9
and we'll go 10 in Jan. All w/no raises!! WOO-HOO!! I'm a tightfisted lil' woman when I get my groove on! He never opens his payroll stub just brings it in and tosses it on my desk. He hasn't a clue anymore how much he brings home. But really the small incremental upwards adjustments weren't even all that noticeble to me either and I'm knee deep in this finance stuff every day. He does look at the ledger books every month when we sit down to go over the budget and I explain why we're doing something a little extra this month savings wise !

The place where they have their company 401K plan is not the greatest and the matching isn't all that fantastic, so I still put 50 a month right now into his Roth as well. After we get to the 10% salary defferal we'll be looking at upping the Roth more while still searching for other investing opps. That Prosper.com over there looks interesting but have only just glanced at it.

He's a wonderful provider and hard worker. This man is so wonnaful that I called him once on the phone and said "Hunny can I buy this house I found? Can we afford it? Yea. Go ahead!" Who wouldn't love a man like that? Put an offer on it w/o him ever seeing it!! What a trusting soul! I'da said hold on tight I'll be right over and we'll see!

He's happy if he has his snack cakes for lunch and a hot meal at night. A very content man and easy to please. Ima, his toys are cars too somewhat although he likes to trade them too often to suit me. BUT computers are his plaything of choice. We have way too many sitting around here needing to move on down the pike!!

[Ima saver]

Re: 401K before credit card debt? or other way around?

Lux, my husband has never seen his paycheck either. I keep track of his hours and write his pay check out to me. then I cash it and give him $60. He would let me buy a house too, he trusts my judgement. I once went to an auction and bought a creek front lot for $6500 and he never saw it. I also bid on a lake front lot and got it, but then the man that owned the property backed out!

[MarianneJ]

Re: 401K before credit card debt? or other way around?

unlike Marianne (I'm not picking!), I had no doubt my habits had changed and I would not be running up debt again and I would be faithful to my retirement. I was right. a little less than a year of sacrifice and lots of overtime later the debt was gone (I can't put a figure on the emotional benefit I gained from that).

*grin* No offense taken, rexdart!

We've had an unusual situation, and I am big enough to admit that it has been caused mostly by bad decisions on both our parts, but I always tried to keep my eye on those "better days ahead". Investing in my retirement makes me feel like I am doing at least one thing to move in the right direction!

We have been slowly turning the bus around so to speak (although it has taken much longer than I imagined it would), and I am finally starting to see a glimmer of light at the end of a very long, dark financial tunnel. Once I graduate and get a nice, new better paying job we will really be rolling and *fingers crossed* be able to pay off all but student loans in less than a year. Hooray!

We were just in that minority that could not get the debt paid off quickly, not due to bad habits but just because of our specific situation (I've been at this for over 4 years now!), so we could not stop the retirement funding completely or it would have been very detrimental to our future financial goals.

You are right, though. Every situation is unique.

[Great to be Debt Free]

Re: 401K before credit card debt? or other way around?

GO for the match and hit the credit cards hard, I'd say! And listen to all these folks-- I only wish I'd had this kind of help a few years ago! What a blessing!