debt snowball and 401K

[Bimmerbill]

I've been thinking of attacking my debts. I have no problem paying them cash-flow wise, but just think I'll try the debt snowball strategy.

Should I reduce my TSP contribution from 18% to 5% (matching level) to really add to the snowball?

I don't have a lot of debt (not counting primary mortgage), and most of it is at low interest levels but I'd like to get rid of it.

Looks like I'd be able to use another 350 or so bi-weekly for debt snowball. What's the impact on 700 less per month into my 401K in the long run?

I'm almost 42, plan to work to 56.

 

[Dude]

I don't have a lot of debt (not counting primary mortgage), and most of it is at low interest levels but I'd like to get rid of it.

What do you consider to be "low interest levels"? How long would it take to pay off your debt at the rate of $700/mo extra? Did you max your Roth IRA for 2008?

 

[Bimmerbill]

Nope, didn't max Roth in 2008. Put a couple K into it. 18% of my pay is around 13.5K, so not even maxing 401K contributions.

I'm still searching for a good debt snowball spreadsheet that will show $ saved if I pay off sooner.

2.9% and 6.49% car loan, student loan around 6%, HELOC currenlty 4.75%.

 

[Dude]

Nope, didn't max Roth in 2008. Put a couple K into it. 18% of my pay is around 13.5K, so not even maxing 401K contributions.

I'm still searching for a good debt snowball spreadsheet that will show $ saved if I pay off sooner.

2.9% and 6.49% car loan, student loan around 6%, HELOC currenlty 4.75%.

I'm almost 38, so we're close in age. I'd strongly consider maxing the Roth IRA for you and wife if married, I think our generation is very likely to get screwed with much higher taxes.....I'd be taking advantage of any opportunity to shelter $$ tax free such as in a Roth. I'd reduce 401k contributions to do Roth if I had to.

I can't see any hurry to pay off 2.9% car loan, you can refinance 6.49% car loan to 4.25% at penfed right now (I did last week). I might throw a little $$ at HELOC if big balance and concerned FED is going to start raising rates. 6% student loan is getting into the realm of what you might earn in stocks, might consider throwing a little extra at that or refinancing with maybe a low fixed-rate home equity loan?

 

[Marquette]

If you are eligible to deduct the HELOC interest on your taxes, then you should consider the effective rate you're paying, not just the rate on the paper. If I were in your shoes and cash flow isn't an issue, then I'm not sure that I'd lower my investment percentage. To Dave's point, we're living with some of the lowest taxes we'll probably ever see... might as well let time help your investments grow and inflation make your debts seem cheap.

 

[jIMOh]

I would not reduce 401k/TSP to attack debt in this case.

a) the debt is not "bad debt/" (consumer debt)- car and house
b) 5% would not be enough to fund retirement which is happening in less than 20 years.

IMO if retirement is less than 20 years away (age 42, retirement at 56), the retirement plan is no longer "long term", it is "mid term" and needs a high amount of attention. High contribution percentage, and appropriate asset allocation (based on time horizon).

What I would do going forward:
1) pay off the current debts (preferably before retirement)
2) avoid taking on new debts
3) increase cash on hand

 

[Bimmerbill]

Thanks for the thoughts. I should reduce my TSP amount and put it into a Roth, but haven't done it for some reason. I guess I'm hoping the TSP offers a Roth option soon. My main gripe was the work involved, but I think I can set up payroll deduction, just like the TSP.

The 2.9% is my lowest balance and highest monthly payment. I plan to pay it off and use the cash to snowball the 6.49% loan. I'll have to call USAA to see if they will match penfed's interest rate.

DD is 2.5 and growing like a weed so I see more outlay in my future. Also, home heating oil is up 80% from last year, putting my $2500 bill up to $4K or more.

 

[Sue J]

I'm still searching for a good debt snowball spreadsheet that will show $ saved if I pay off sooner.

I found this one - What's The Cost? - Become debt free at WhatsTheCost.com

It's a British site, but if you register and login you can change the currency to dollars. When you are signed in there is a link on the left for "Snowballing" and it's pretty straight forward from there. Be sure you check whether you want the snowball in Interest Order or Balance Order. You can save your snowballs and come back later and add additional payments and revise. Mine turned out pretty close to actual figures but there is a slight discrepancy due to payment dates. But it's very helpful to give you a good idea of the impact of additional payments.

We started in March on paying extra on a 4.9% car loan that had 2 years left on it. We will be done with that in August and move to another small car loan.

It's very helpful to see the progress and the end in sight.

 

[Bimmerbill]

Thanks that was what I was looking for. No registration was required either.

I guess I'd like to pay off the loans so I can fully fund Roth and TSP contributions. That's a lot of coin tho, so may not be possible on my gov't salary.