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Old 10-26-2007, 09:50 AM   #41
Recycles dryer sheets
Join Date: Aug 2007
Location: Midwest
Posts: 109
Generally good advice in this thread. I disagree with the suggestion to increase 401k contributions to 10% unless and until you have taken care of other priorities, particularly getting rid of your credit card debt. My suggestion, similar to some of the others, are to have the following priorities:
1. Adjust your spending to lower it to significantly less than your income. None of the other advice matters if you don't do this.
2. Establish a small emergency fund, at least to cover your monthly cash flow. You don't want to risk bounced check fees.
3. Increase your credit card payments so that you have them paid off in about 3 years, sooner if high interest rates, perhaps a bit longer if 12% or less. If you have a number of small debts, pay them off first so you have fewer to keep track of. Once it's down to a manageable number of debts, pay extra on the one with the highest interest rate. But if you're over-the-limit on one of your cards pay it off first.
4. If your employer matches your 401k contribution, take advantage of that.
5. Contribute to your Roth IRA up to your maximum.

After you've done these things, then you could consider whether to increase your 401k contribution beyond the employer match or pay down your CC debt faster, or if the CC debt is gone to pay ahead on your car and student loan debt.

Since your new employer doesn't have a 401k, then #4 doesn't apply to you right now. Later on that may change, so take advantage of tax-deferred savings when it's available. In general, tax diversification in retirement savings is good --- that's diversification between Roth and tax-deferred savings.

Why do I suggest paying off CC debt over 3 years? It's an estimate. My thinking is that even though the interest rate is high if you kill it in 3 years it doesn't have too long for the interest to compound. OTOH, the return your retirement contributions will compound for decades if you don't withdraw them. And the opportunity to contribute to this year's limit doesn't rollover from year to year, so you have to consider the opportunity cost of not contributing this year.

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Old 10-26-2007, 05:59 PM   #42
Recycles dryer sheets
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Join Date: Dec 2005
Posts: 163
I'll echo the sentiment that there is a lot of good advice on this board. You are fortunate to have discovered your situation at 27 and realized that you can do something about it. I have a brother that finally realized his situation at the age of 46. He took action and it has changed his financial situation and his outlook on life. If you start now, you have a lot of time to get things right, and it may not take as long as you think. Just to give it some perspective, there is a thread in Young Dreamers about where each person was at 31 years of age (Where were you at age 31?). If you read that, you will find that you can be far ahead of where many of us were when we were in our early 30s if you start now. Good luck!

The way I see it, you got two choices. You either gotta get busy livin'...or get busy dyin'.
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