Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Old 08-17-2007, 09:05 PM   #21
Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 2,155
20% interest? That's mind-boggling! What kind of debt is that?

Your job is stable, you make 98K a year. Can you get a 28K personal loan from a bank?

Sam is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-17-2007, 09:48 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,247
Also you should consider your period of non-participation in your 401k like a loan. After paying off your debt, you should continue making payments and switch them to your 401k, increasing contributions above what the employer matches until your "loan" is repaid.
I agree. I would pay of the loan as fast as possible, then continue the payments into your retirement account(s). The 20% is after taxes. If this were an investment, consider you tax rate. If your tax rate is 28% (wag), before taxes, it is roughly equivalent to 20/(0.72)=~28%. You can't get a guaranteed return on investment this good anywhere. You want to get rid of this ball and chain.

my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 08-18-2007, 01:44 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Feb 2007
Posts: 5,075
Pay off the high debt first.... ASAP!
chinaco is offline   Reply With Quote
Old 08-18-2007, 12:08 PM   #24
Recycles dryer sheets
Eyerishgold's Avatar
Join Date: Aug 2007
Posts: 222
What makes this decision a whole lot easier is the interest rate you're paying on the loan. 20% (ouch). Unless you can get better than a 20% return investing your money, I'd definately pay off the debt first.
Eyerishgold is offline   Reply With Quote
Old 08-18-2007, 12:20 PM   #25
Thinks s/he gets paid by the post
BigMoneyJim's Avatar
Join Date: Feb 2003
Location: DFW
Posts: 2,615
A thought or two: To keep the 401(k) match you must be vested. If you're already vested, the match is very powerful, and the reduction in income taxes you get helps, too.

When I was on a debt-eliminating streak from 2001-2005 I was single, renting, had a secure job and was vested in my 401(k). I was also able and willing to relocate if it were to become necessary. Given these circumstances I contributed more than the match to my 401(k), paid my debt down aggressively, managed to get lower interest rates and had no after-tax savings (emergency funds).

I plotted things out and found that there was a most efficient ratio between savings and debt reduction after taking into consideration matching, tax savings and cc interest charges during the period of the debt elimination. However I chose to be more aggressive in paying down my debt and less efficient (in theory). In other words, on paper there was a savings/debt-reduction split that would have left me with more money than other splits.

I sold my nice truck and bought a sedan that was more fuel efficient, had lower payments, cost less overall and cost less for insurance.

I was able to consolidate my debt onto a family member's low(er)-interest rate card. That helped a lot, but mixing finances and family is rarely advisable.

I guess the summary is that how you split your 401(k) savings, after-tax savings and debt reduction is a personal choice. There may be a most efficient split on paper, but you have to consider other factors like how much it would hurt to lose income, have to move, etc.. But whatever the choice, there are many ways to reduce your expenses and interest rates that may not be immediately obvious, and those help no matter how you split your money.

BigMoneyJim is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Equity Is Altering Spending Habits and View of Debt Craig FIRE and Money 6 02-21-2009 12:25 PM
Analyzing the mortgage payoff option sgeeeee FIRE and Money 43 06-22-2005 09:29 PM
Market and public debt Marshac Other topics 6 08-30-2004 06:05 AM
Debt Countdown Update BigMoneyJim Young Dreamers 7 06-08-2004 07:27 AM
Paying off Debt vs. 401(k) Contributions BigMoneyJim FIRE and Money 4 02-10-2003 10:06 AM


All times are GMT -6. The time now is 03:17 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.