occ_doc
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« on: August 01, 2008, 08:45:49 AM » |
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I don't want to jump on another poster's topic as I see there is a similar thread on this. Myself and my partner are in a heated disagreement over this and I would appreciate some advice.
I hate to air our financial dirty laundry, but want to get all the details and numbers out there. We have combined credit card debt of over 20K. That is very hard to write down in public. We have good reasons for this debt (if there is such a thing). What we have going for us is that we are both young (in our early 30's) and make a good combined income of approximately 150K. Also, we have a STRONG desire to get rid of this debt as fast as humanly possible.
With that said, my SO is putting 11% of hu salary into hu's 401 plan. Quite a hefty amount if you ask me. I would like to see us reduce that amount to around 7-9% and throw that extra amount towards the debt. We have lots of time to save for retirement and I think it is silly to be saving, when we have so much debt. My SO wants to continue to aggressively save and plan for retirement at the 11% mark.
So...which approach seems better? Should we leave our 401 contributions alone and keep drudging along, or pull back and get rid of the debt first? I would appreciate any and all advice on this matter.
Thank You.
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donstefano
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« Reply #1 on: August 01, 2008, 08:55:18 AM » |
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Given your age and income: one frugal year appears to be is enough to pay back the debt.
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panthro
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« Reply #2 on: August 01, 2008, 09:36:55 AM » |
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You really can't do both?
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inthelab
Where beloved molecules abide
Distinguished Senior Member
Posts: 4,240
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« Reply #3 on: August 01, 2008, 10:19:20 AM » |
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I'm with panthro.
Look for 0% credit cards, transfer balances to those cards, and pay it down. Tighten the belts in other areas.
I've done it and put 15% away for retirement on similar income in an expensive part of the country. Now down to the last $3K in debt (which will be gone in a couple of months).
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inthelab, I love you for that.
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charlesr
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« Reply #4 on: August 01, 2008, 10:23:31 AM » |
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Ditto panthro and inthelab. Cut back on travel, eating out, and other luxuries and pay down the debt. I have trouble imagining that there are no discretionary expenditures.
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aristotelian
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« Reply #5 on: August 01, 2008, 10:38:27 AM » |
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You don't mention if your SO's contribution is matched by the employer. If so, you should not turn down the opportunity for free money. If, however, you are just contributing to the 401 to save the money with a tax break, then I think you are right that it's more important to pay down the credit card debt. Ideally, as others have said, you should be able to do both on $150k.
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bspsy
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« Reply #6 on: August 01, 2008, 10:45:06 AM » |
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If possible, you need to put money towards retirement ASAP to take advantage of compounding interest over time. That being said, you should also think in terms of return on your investments. If you have a credit card that charges 18% interest (for example), and you pay off that debt, you are getting an immediate 18% return--there are few investments that will give you that type of return. So my advice would be, for now, take whatever you're putting toward retirement and split it in half; put half toward your credit card bills and the other half toward retirement. And whenever possible, put extra toward the credit cards. Good luck!
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clean
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« Reply #7 on: August 01, 2008, 11:07:13 AM » |
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I would suggest (as I often do) reading Dave Ramsey's Total Money Makeover. The steps for getting out and staying out of debt as well as building wealth are there. It will also give you some basis for why things are done in the order that is suggested.
I hope that this helps
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"The Emperor is not as forgiving as I am" Darth Vader
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occ_doc
New member
Posts: 23
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« Reply #8 on: August 01, 2008, 11:21:50 AM » |
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Thank you. The advice is appreciated. I ordered the Dave Ramsey book 3 weeks ago from tips I had read on this forum. I have to admit I have yet to open it, but this discussion has prompted me to start tonight!
And you are right-we already have cut way back on dining out, trips, sports tickets, golf, misc. We plan on living on a meager budget for a year to cut this debt out. I asked whether my SO should also cut hu's 401 contribution 2%-3% and put that money towards debt repayment.
Thank You again!
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charlesr
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« Reply #9 on: August 01, 2008, 11:57:31 AM » |
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As long as you are not affecting the retirement match, I'd cut back on SO's retirement contribution after you have exhausted all other opportunities to reduce spending.
Perhaps you could increase SO's contribution next year to make up for reduction.
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clean
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« Reply #10 on: August 01, 2008, 12:07:32 PM » |
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If you can pay off 20K in debt, certainly you can put a lot more into retirement, not just next year, but forever!
Congrats on taking the first step.
Imagine how much you would accumulate over the next 30 years if you used that 20K to pay off all of your debt and then put it toward investments!
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"The Emperor is not as forgiving as I am" Darth Vader
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pedanterast
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« Reply #11 on: August 01, 2008, 02:07:52 PM » |
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What's the rate on the credit card debt, and what's the story on the match? Those are the two facts we need to help you make the right decision.
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