Pay off debt or invest?

[LivingAlmostLarge]

Bad, bad, awful idea to give up a 401k match. That's 100% return, it cannot be beat. Sure the market can go down, but basically if you get a 5% match, you've just PASSED up a 5% RAISE!!!!! Who here doesn't want 5% raise? Give it to me, I'll take it anyday of the week.

Second, besides jim's point of $50 versus $5, here's the tax breakdown. For every $100 not in the 401k, they will be paying $40 in taxes, so $60 to debt. That saves them $5 of interest to have lost $40 in taxes. NOT a good idea.

I think, not sure, but if Disneysteve had been given an option of a 401k, I wonder if he would have paid off debt as quickly or he would have tried to maximize his 401k?

As long as you can sleep at night. Personally I'll sleep better when I have enough in my taxable accounts to pay off my mortgage, then I know I'll have a very positive net worth.

Until then, I'm not prepaying a penny to my mortgage. Everything will be funneled into taxable accounts. Until you own a house 100% it can be foreclosed on.

And you can lose a job, so the risk with and without debt is the same. Until you can pay all debt 100% in full, there is no difference.

Just cause you pay $100k in student loans down to $50k and I have $75k left but $25k in the bank what's the difference? If we both were disabled you'd owe $50k without an ef and I could make payments for years.

Same with our $200k homes, where you owe $100k, I owe $150k with $50k in the bank. You get disabled the bank in 1 year can take the house away, me I could live off the $50k making payments maybe trying to retrain.

Matter of perspective. Until anyone can afford everything 100%, we're all the same boat of risk, except I have a larger safety net. More conservative people keep cash on hand until it's 100% paid in full.

Riskier people live with $1k EF, pay off debt, etc. They have very little room for error.

This guy needtobedebtfree.blogspot.com, he is a DR follower. He was living on a $1k EF, but stuff kept happening. Then he gave in to his wife's begging and saved like 1 month's expenses $3400. Turns out they needed it, she had to travel for a family emergency, and isn't getting paid. And they still have debts to clear....hmmm without the extra buffer how would they pay their mortgage, credit cards, and extra? I'm guessing whipping out the credit card. So much for everyone telling him to quickly pay off debt.

It didn't work. And in the OP's case, it won't either. Too much debt to expect to clear it quickly without crap happening.

[maat55]

maat55 - It seems like you are a little over the top on some of your advise / comments. We are actively paying down are debts. We are hoping to be able to reduce our debt load by $25K this year. As our income increases this will be accelerated. I don't understand how you could suggest that we pay debt that is at fairly low interest rates before investing in our 401Ks. We would end up paying more in taxes if we did not invest in our 401ks, not to mention the free money from the employer match. This is not sound financial advice.

Obviously I would prefer to have no student loan debt, but I believe that this was a good investment and would not make a different decision if I had the opportunity today. We could not have financed our education with less money. We could have achieved a similar degree for less money, but when you go to graduate school the school that you attend impacts the amount of money you will make upon graduating. Most of our loans is for my wife's degree who went to a top 10 business school. Going to a lesser school would have been cheaper but also would have had a smaller financial upside.

I think a lot of our differences of opinion come down to risk tolerance. I do not lose sleep at night or stress about the fact that we have a lot of debt. I am trying to make good financial decisions based on my current state of affairs, and not make decisions based on fear. I agree with a lot of the people who have suggested that we increase our emergency fund, and we will do that. I don't agree with paying off debt just because debt is bad or because it will improve our "peace of mind".

I consider myself a conservative in a room full of moderates and liberals. My advice is not intended to be a long term plan, but a rather fast track plan. No matter what you do, you will probably reach the finish line with large sum of money. My suggestions are based on getting out from under a threat you carry along the way.

My advice in a nutshell has been for you to protect your position with an EF and ins, Payoff your unsecured debt and then invest for the future. Use it, loose it, what ever.

[debtslayer]

Hi,
you may want to look into the Dave Ramsey Total MakeOver book. I think you will find excellent info in there to help you. I think you will be able to maximize your funds better by following his simple rules. He does suggest to pay off the house last and eliminate debt first. There is a suggestion in there that will help you to prioritize paying off debt and investing at the same time once you reach a level of saving for an emergency fund first and eventually investing.
Hope that helps, go to his website to look into this if you don't want to get the book. The site is pretty informative.
Good Luck!

[Scanner]

Dave Ramsey, Dave Ramsey, Dave Ramsey!!!

I'm going to explode if I hear his name one more time.

There was another author. . .George Clason. . .he wrote The Richest Man in Babylon.

The main prinicple of this book was:

1. Pay Yourself First

There is always someone with their hand out - the car mechanic, the doctor, the student loan service company, the Girl Scouts, etc.

You can always find someone you owe something.

If you don't pay yourself first (the 401k in question), you will never accumulate wealth.

You'll just acheive a zero sum net worth following Dave Ramsey's advice.

You'll have no liabilities.

But you'll have no assets either.

I don't know about some of you, but some years with my family, our Roth IRA contribution at the end of the year was all we had to show for our hard work. I'll be darned if I would let a TV entertainer tell me to not pay myself something per year.

[ActYourWage]

Dave Ramsey, Dave Ramsey, Dave Ramsey!!!

I'm going to explode if I hear his name one more time.

There was another author. . .George Clason. . .he wrote The Richest Man in Babylon.

The main prinicple of this book was:

1. Pay Yourself First

There is always someone with their hand out - the car mechanic, the doctor, the student loan service company, the Girl Scouts, etc.

You can always find someone you owe something.

If you don't pay yourself first (the 401k in question), you will never accumulate wealth.

You'll just acheive a zero sum net worth following Dave Ramsey's advice.

You'll have no liabilities.

But you'll have no assets either.

I don't know about some of you, but some years with my family, our Roth IRA contribution at the end of the year was all we had to show for our hard work. I'll be darned if I would let a TV entertainer tell me to not pay myself something per year.

DAVE RAMSEY!!! There I said it. Have you exploded yet? Darn!

I have used DR methods the last 10 months or so and have paid off over $30,300 dollars with at the time a house hold income of about $60,000 dollars and paying around 11% of our gross income to tithe at church and am now debt free (besides the mortgage). Now we are building wealth, we have assets and my wife and I did this without paying our selfs first. Now we pay ourselfs a WHOLE lot more now. And we only sacificed 10 months. His plan is to pay off debt (non mortgage) as fast as possible then begin fully funded EF (the full 3-6 months), investing, 401K, Roth IRAs, etc. Please don't knock someone because you don't like them. Thank you.

[jIM_Ohio]

we don't knock DR because we don't like him, we mock him because the advice is less than good.

[maat55]

we don't knock DR because we don't like him, we mock him because the advice is less than good.

Thats your oppinion and nowhere near fact.

[LivingAlmostLarge]

Act your wage how did you pay off 50% of your income in 10 months? I am curious, did you sell anything big like a car? I mean obviously you pay zero taxes right? At $60k and couple of kids then = zero taxes. So you pretty much get everything.

[ActYourWage]

Act your wage how did you pay off 50% of your income in 10 months? I am curious, did you sell anything big like a car? I mean obviously you pay zero taxes right? At $60k and couple of kids then = zero taxes. So you pretty much get everything.

We do not have kids at the moment. We surely do pay taxes (too much I think). Last March (2007), I begin to really save my money. I saved up almost $9000 dollars. Paid my wifes student loan off with that. We got married last October and our tax refund was pretty big (around $2600) since then we have adjusted that to where we are bringing home more money each pay check. Used that toward the remaining debt. I will say, my God helped us be frugal and we ATTACKED the remainer of our debt. I believe the key from the beginning was when we started a budget where we assigned EVERY dollar a name. It has worked wonders. If you need any more info, I will surely be glad to help. Thanks.

[ActYourWage]

we don't knock DR because we don't like him, we mock him because the advice is less than good.

Why do you say that? Give examples. I am sure everything he says may not fit with what one is trying to accomplish, but he will make you think about how one is spending their money.


BTW, DR practices what he preaches. He once had nothing but now is a multi-millionaire. I believe his advice is working from some! Alot of people tune him off once he says to get rid of that ridiculous car payment or some other thing they don't need.

[Scanner]

Originally Posted by jIM_Ohio
we don't knock DR because we don't like him, we mock him because the advice is less than good.

Thats your oppinion and nowhere near fact.

Well of course it's an opinion. (which is right). I deal in the world of opinions every day. People ask my opinions all day.

Actually, I like Suze Orman's advice better than DR's. I can appreciate debt reduction as a worthy goal. In fact, I prefer to reduce debt vs. hold bonds as part of my financial plan.

But if DR is advocating "Pay yourself last" as part of the equation of building wealth, then I very much disagree with that.

As I said, in life, someone will always have their hand out.

You can never go back in time and contribute to your 401(k) and/or Roth. My measley $85,000 portfolio and my home equity (considerable) are all we have to show for our years of hard work. (and our beautiful, kind children)

I really don't care about the "PAID OFF" status on my credit report on all the loans (student and business) I have had.

That and $5.00 will buy you a cup of Starbuck's coffee.

[Scanner]

cancelled

[LivingAlmostLarge]

Actyourwage, so you have minimum expenses of less than $30k? And that $30k includes taxes? So if you paid $10k in taxes you lived on $20k and paid off $30k of after tax money right?

Wow, where do you live? $1500/month can barely buy you rent here, but heck if it's where you live I'm curious.

[toptaxguy]

If the percentage return on your investments will be greater than your percentage paid on loans then you should invest. The objective is to increase your net worth.

[jIM_Ohio]

Why do you say that? Give examples. I am sure everything he says may not fit with what one is trying to accomplish, but he will make you think about how one is spending their money.


BTW, DR practices what he preaches. He once had nothing but now is a multi-millionaire. I believe his advice is working from some! Alot of people tune him off once he says to get rid of that ridiculous car payment or some other thing they don't need.

My best guess is DR makes more money from his books and radio shows than he does through financial planning or another day job.

His advice is less than good because, as you put it, he makes you think how you spend money. It is not saving advice (which is what this forum is about). He is in a position to give much better advice about saving money (like pay yourself first) but chooses not too.

Less than good advice.