Need help with 401k/CC Debt Math

[leafz3n]

Hi all,

I am considering postponing my 401k contributions for 6-12 months, and using that % to automatically be put into a separate account to be put towards paying credit card debt faster, and then continuing my 401k after that. I have been trying to punch the #'s on this all morning but the math is confusing me a little....

I usually contribute 7% of my paycheck to my 401K (pre-tax, of course).

My main question is: How do I figure out what % to tell my employer deduct from my paycheck? I will have it automatically put into an account, which will be auto-pay to my Credit card. The goal is to make it so I don't feel the difference in my bi-weekly paycheck.

Can anyone help me do the math on this? Thank you so much...

Kellen

[scfr]

Does it need to be a whole number? (In other words, 8% would be OK but not 8.2%)?

[disneysteve]

I am considering postponing my 401k contributions for 6-12 months, and using that % to automatically be put into a separate account to be put towards paying credit card debt faster

Is there a company match? If so, then I vote no on this idea. You would be passing up a 50% return on your investment to pay off a credit card that is less than a 30% interest rate and possibly less than 20%.

[leafz3n]

No, it does not need to be a whole number... and No, there is no company match unfortunately...

[Jluke]

I think you're making it too complicated.

Based on what you want to accomplish, drop the 401k to 0%.

If you were bringing home $800 before and now it is $1000, you put $200 on the credit card.

Of course you need to transfer this amount each time and not make an excuse not to put it towards the credit card.

[disneysteve]

My main question is: How do I figure out what % to tell my employer deduct from my paycheck? I will have it automatically put into an account

Are you saying your job can automatically take money from your pay and put it in a savings account for you? If so, they can probably do a flat dollar figure as well as a percentage. Just look at your paystub and see how much has been going to the 401k and put that same amount into the savings.

Either that, or just do the transfer after you get paid. When you deposit your check every 2 weeks, immediately send the desired amount to the credit card company. You don't even need a separate account.

[leafz3n]

JLuke - Yeah, this seems to be the general consensus... I was just trying to make it more "automated" to reduce the risk of me not putting the money in there. Plus, I often work overtime and so the check's fluctuate, but never go below the 40 hour mark.

[disneysteve]

I often work overtime and so the check's fluctuate, but never go below the 40 hour mark.

Just base it on the normal 40-hour amount and see if they can do a flat dollar amount rather than a percentage.

[leafz3n]

Ok, maybe that is a better plan.. thanks

[scfr]

You'll lose some in tax savings.
Or, to state that more simply, your taxes will go up a little.

I'm thinking: .07 - x(.07) where x is your MARGINAL tax rate.

So, if your marginal tax rate is 25%, then it would be: .07 - .0175 = .0525 = 5.25%

That's if you want to see no change to your paycheck.

If you are willing to get a bit more aggressive about paying down the debt and can live with a slight reduction to your paycheck, then go with 7%.

If you don't know your marginal tax rate, here is one place you could check: http://www.forbes.com/sites/kellyphi.../#4a485dd3792e

And get back to saving for retirement as soon as you can!
Good luck getting that debt paid down.