Minimilize 401K investment to pay off CCard?
 

My wife and I have one remaining source of non-asset debt: 1 credit card with a balance of roughly $3,200.

After this card is gone, the only debt we carry is our mortgage, auto loans, student loans.

The minimum payment on the card is $54.
After paying my motorcycle off last month, we're able to move the funds that were paying for the bike, to the card. Now we're paying roughly $175/month.

Ignoring interest, it will take 18 months to pay $3200.

We invest in our 401k at a rate that works out to $200/month. It occured to me that investing $200/month earning 8%-ish is not necessarily a good idea vs paying interest on debt at 15%.

We're tossing around the idea of minimilizing our 401K investment, freeing up about $200/month. Then we'd add that to the $175 we're already paying on our card. The accelerated $375/month rate pays $3200 in 8.5 months.

The question I put to you fine people is:
Is it worth suspsending 401k investment for 9 months to pay off our last remaining debt?

Keep in mind, we're 26 and 25 years old, and have our 401k as our primary investment at this time. We've been investing "heavily" in that for 20 months. It's not bad for a pair of kids.

Both of us are in college (again), student loans are going to need to have some interest payments (the unsubsidized loans). Freeing up the monies we're paying on that credit card would be very nice. Waiting 18 months to free that up is not a prospect we're happy about.

Thoughts?

Are you getting a 'match' from your company on the 401k investments? That will need to be factored in.

Yes, they match up to 5%.

Obviously, if we drop our contrib to 1% (the lowest we can do and still stay in the plan, I think) they'll drop thier matching to 1%.

Say, we'll not contribute a total of $2025 over the 9 months, to the 401.

Of course, I know that over 40 years, that's a huge buttload more than the interest we'll save on the ccard.

The question is: Since we are in our mid 20's can we afford 2k not in there, to release $175 a month into our general cash flow.

Would that 175 make an important difference to us right now? Yes, it would.

Well, keep in mind if the company is matching you dollar for dollar up to 5%, you aren't earning just 8%ish.

You are earning 108%ish, as every dollar you put in they put a buck in as well, providing that you are either already fully vested or will be fully vested when you leave your job(s).

Gaining 100% sure beats the pants off of paying 15% interest - is there anywhere else you can cut down your monthly output to put more on your credit card, even temporarily?

I agree. If you don't put in to at least what the company will match, you are throwing away free money. ALWAYS put in at least what the company will match - as NS said, you just got a return of 100% on your investment (assuming they match dollar for dollar).

Don't forget the taxes deferred on your 401(k) contributions.

On a side note - sounds like you're spending as much as you can, on "stuff." Motorcycles? Car debt? Mortgages? And now student loans? Maybe you should re-assess your living and spending styles.

any chance that this debt could be consolidated with home equity?

I respect your comment, and your opinion. I'd like to "correct" what you noted though. I feel I just have to.

Morotcycle. One. Not "s" as in many. We own it now, so there is no payment on it. Also, very painfully to me personally, I haven't ridden it this year. We chose not to spend the extra money insuring and registering it this year.

Car debt: You have a valid point, I suppose. Instead of two cars, one 1 year old, and one 3 years old, we could have one paid for, and one on loan. Or even two beaters that are paid for (and have the associated higher maint. and inconvieance costs associated with older high mileage cars).

The 3 year old car was my first new car ever (my Lancer, at all of $16k, is not what most people consider a luxury car), and I did get a very nice, low rate loan on it. Before we bought her new car, we owned paid-for '90 Crown Vic until we'd saved up the 25% down payment we put on her car. Yes, I said 25% down. Not too many people do that. Our interest rate on that loan is very low also.

Mortgage. Again, singular. Owning our home is cost equavalent to renting, and a much smarter use of the monies involved. Our APR is 5.25%. That's awfully hard to beat, especially for 26 year olds.

Yes, student loans. Unfortunately, we're unable to pay roughly $6000 per semester for the two of us. It will cost us roughly $55,000 for our three degrees. (I'm improving on my AS by getting a BS and a MS, she's getting her MS) Our earning potential will rise by a sickening % with the education we're getting. Hardly money poorly spent.


Overall, and yes, I am bragging (shoot me), our FICO scores are both over 800. We're 25 and 26 years old. I think we're doing something right.


More to the point of the topic though, I think you're all right about the idea. It wouldn't be worth our while to suspend investment to save on interest. It's taken us 5 years to get to this point, and I suppose I'm getting impatient. We're both tired of having unsecured debt. Credit cards are stupid, and we're anxious to have none. I was just trying to hurry up the process, but you're right, it't not worth it.

Glad to see you guys are working on figuring it out - I see too many clients "living the American dream" that wind up with nothing at the end. Good luck.

Keep investing in the 401k. You will make far more on that than what you would pay the CC in interest at the rate you are paying it off.

If you want to pay off the credit card sooner, get a part time retail job over Christmas (start applying in August/September) and use the extra bucks for that.

Also, you didn't mention the rate. With your FICO, you should be able to get a credit card with 0 apr on balance transfers. Most that do it do it for a year. Do that, leave the current card open (unused but available credit increases your FICO score), transfer the balance, and pay off the new card.

Student loans: you are really investing in yourself here. My opinion is that you will increase your earning potential by WAY more than you will pay in student loans + interest.