Debt vs 401(k)

[jhayes]

Hello all,

This is my first post and I wanted to get your opinion on something. I'm 27 and was left with some debt from my parents and have worked diligently in paying it off (down to $20k) in a personal line of credit at 10% interest which will be paid off by March of next year.

I have put any available funds to my debt (payment of $600/mo and an additional $1000 per month). I've made extra payments on my 2014 car and have officially paid it off 2 years early (my first car without a car payment) and am proud of it but want to tackle the 20k to keep on track for my personal goal of March 15, 2019 payoff.

I contribute to my 401k (6% and my employer matches 3%, and puts in an additional 7% for profit sharing and 5% whether we contribute or not so a total of 21% monthly that I started contributing when I was hired at 25).

Should I lower my 6% 401k contribution down to 3% until next March and put the extra money towards the 20k balance to pay it off quicker than March? I make 60k a year and total monthly expenses (rent, car ins, cell) is $800 a month (all inclusive apt).

I have come a long way and have kept an excel sheet for years to get to this point and see light at the end of the tunnel, but don't want to mess it up with a unplanned emergency which I'm not prepared for besides credit cards with 41k in open credit.

I appreciate your input on my long-winded post...

[TexasHusker]

Hello all,

This is my first post and I wanted to get your opinion on something. I'm 27 and was left with some debt from my parents and have worked diligently in paying it off (down to $20k) in a personal line of credit at 10% interest which will be paid off by March of next year.

I have put any available funds to my debt (payment of $600/mo and an additional $1000 per month). I've made extra payments on my 2014 car and have officially paid it off 2 years early (my first car without a car payment) and am proud of it but want to tackle the 20k to keep on track for my personal goal of March 15, 2019 payoff.

I contribute to my 401k (6% and my employer matches 3%, and puts in an additional 7% for profit sharing and 5% whether we contribute or not so a total of 21% monthly that I started contributing when I was hired at 25).

Should I lower my 6% 401k contribution down to 3% until next March and put the extra money towards the 20k balance to pay it off quicker than March? I make 60k a year and total monthly expenses (rent, car ins, cell) is $800 a month (all inclusive apt).

I have come a long way and have kept an excel sheet for years to get to this point and see light at the end of the tunnel, but don't want to mess it up with a unplanned emergency which I'm not prepared for besides credit cards with 41k in open credit.

I appreciate your input on my long-winded post...

Dave Ramsey would say put all your $$ toward the debt. If it was me, my priority would be the 401K if given the choice. Assuming the car loan APR is in the 2-3-4 percent range.

March isn't that far away. Just keep plugging.

[msomnipotent]

I'm curious to know what the debt is, if OP is even obligated to pay it.

[disneysteve]

Don't sacrifice a 50% return (401k match) for a 10% return (prepaying the line of credit).

What you DO need is any emergency fund. Slow down on the debt repayment and set aside at least $1,000 in a savings account.

[jhayes]

Thanks all, that's a good idea to have the $1k fund so I will slow down some and create that fund first.

[Thrif-t]

Yep I'm wondering why you're obligated to pay your parents debt too?

But none-the-less, agree with the others, get yourself an emergency fund and keep plugging away at the debt. I wouldn't lower my 401k contributions now. You'll see the most compound interest from the $$ you are putting in now while you are still young, keep at it.

[FullyFI]

I would first get the emergency fund in place for the peace of mind. Then I would drop your 6% to the company match of 3% and after bills put everything towards that 10% loan. March 2019 isn't that far away. With the extra money from dropping your 401k contribution, that could turn into a February or January completion.

[disneysteve]

I would drop your 6% to the company match of 3%

If he drops his contribution to 3%, he'll lose the full company match. They contribute 50 cents on the dollar up to 3%. If he puts in 6%, they put in 3%. If he only puts in 3%, they'll only put in 1.5%. That's how matches typically work. So he'd be passing up a 50% return in order to pay off a 10% debt which makes no sense.

OP, forgive me if you are not a "he". I just picked a pronoun.

[FullyFI]

If he drops his contribution to 3%, he'll lose the full company match. They contribute 50 cents on the dollar up to 3%. If he puts in 6%, they put in 3%. If he only puts in 3%, they'll only put in 1.5%. That's how matches typically work. So he'd be passing up a 50% return in order to pay off a 10% debt which makes no sense.

OP, forgive me if you are not a "he". I just picked a pronoun.

Ah, he is getting a 50 percent match. I thought he was just contributing above his companies match. He has to put in 6% to get 3%.

I thought he was getting a 100% match up to 3%.

[disneysteve]

Ah, he is getting a 50 percent match. I thought he was just contributing above his companies match. He has to put in 6% to get 3%.

I thought he was getting a 100% match up to 3%.

He didn’t specify but 50% up to 6% is a very standard formula.

[snafu]

The sums you contribute [+ employer match] to retirement plan in early years has the most value because it has the highest number of years to to compound and grow. Can you identify holdings in your 401K? What did you choose?

I too add my voice to others asking you give priority to a 1st step $ 1K Emergency Fund. If you are willing to identify your spending in the various categories, SA participants may be able to provide some suggestions to get better value from your money.

[tman2004]

I reduced my 401 to 3% for the time being. Work still kicks in 1.25% plus pension. I have got to get my debt paid, now that I see how much it detracts from what I could be doing with my life. 800 a month for an apartment that includes all that stuff is a steal. You can't even rent a 1 bed here for 800