pay off cc OR contribute to Roth???

[tommybitt]

My wife and I are trying to decide which is better....
We have $9,000 in credit card debt at 8% interest. We both recently opened ROTH IRAs.
By her calculations we can pay off the credit card within a year while still contributing approximately 5% of each of our income to the Roths.
By my calculations we can pay off the cc entirely within 5 months. Then begin contributing to the Roths for the remainder of the year.
Given my bullish outlook for the 2011 stock market, I feel as though maybe we SHOULD go 5% into the Roths sooner rather than later, however, it was always my understanding that you should always pay down debt BEFORE saving/investing. We're not sure which way to go.

anyone have constructive insight?

[disneysteve]

I would take the guaranteed 8% return from paying off the CCs over the possibility that you might earn more than that with the Roth. The CC payoff is a sure thing. The Roth is not. You can have this mess cleaned up in 5 months. That then gives you 10 months (through April 2012) to make your 2011 Roth contributions.

[tommybitt]

thanks

Thanks Steve. I was kind of leaning more in that direction. Trying to convince the "better half" that we only begin to make profits AFTER investments reach 8%

[disneysteve]

Thanks Steve. I was kind of leaning more in that direction. Trying to convince the "better half" that we only begin to make profits AFTER investments reach 8%

Exactly. Now if your CC was at 3 or 4%, or 0%, her argument would be stronger, but at 8%, no way. I'll take a guaranteed 8% any day.

[JoshuaHeckathorn]

Thanks Steve. I was kind of leaning more in that direction. Trying to convince the "better half" that we only begin to make profits AFTER investments reach 8%

The most recent Discover More card is offering 0% interest for 12 months and no balance transfer fees. This is a fairly rare occurrence, and I follow the credit card market closely. In fact, this is just a short promotion that Discover is running through Feb 28th.

So if you have good credit, another option would be to move your balance for free to a new Discover More card and pay it off at 0% interest over the next 12 months while contributing to your ROTH as well. That way you get the best of both worlds.

By the way, Discover More has no annual fee and is one of the best cash back credit cards out there, so it's a card you could potentially like and keep using for a long time too.

[disneysteve]

The balance transfer wouldn't be a bad idea but I'd only suggest that if the amount owed was a lot higher. They can pay this off in 5 months. Most likely, if they really tightened their belts, they could do it even quicker. I say just go ahead and pay it off and be done with it.

[JoshuaHeckathorn]

The balance transfer wouldn't be a bad idea but I'd only suggest that if the amount owed was a lot higher. They can pay this off in 5 months. Most likely, if they really tightened their belts, they could do it even quicker. I say just go ahead and pay it off and be done with it.

I'm all for paying off debt as fast as possible too. Still, they could save 8% interest over 5 months and technically pay it off even faster if they really are committed to the plan. It's just not very often that these types of offers come along when the credit issuer waives the BT fee too, so I like to see people take advantage of it if they can.

I would say that if the OP thinks there's any possible chance they might be tempted to not pay it off as fast because they moved the debt to a 0% interest card, then I agree with you- just pay it off asap and move on. And never carry a balance on your credit cards again!

[SavingAdvice]

pay off cc it might be hard to beat 8% guaranteed

[Snodog]

Yep, pay off the card then invest in the Roth. Its not a sure thing that the market will go up this year. My #1 rule of investing is something Jack Bogle said; "Nobody knows nothing". That goes especially for me.

[thomsoad]

Pay off the CC. 8% is good plus the feeling of just getting out of CC debt is a feeling the Roth cant beat. Trust me on this one.