| add to 401k or pay off CC's???? |
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madisonbrent
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| add to 401k or pay off CC's???? |
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I have a question and I need help. say I have 5k in credit card debt and I have 5k in cash. I have zero in 401k or any other mutual funds. I'm 26 years old. should I take the 5k and pay off the cc's that are charging me 10% a month in interest or take that 5k and stick it in a mutual fund and hope for 6-10%.
as a side note I have the ability to invest in a 401k through work, but dont have the money to do so since Im paying off my credit cards. I think they match 3%. if I paid off the cc's I could invest in the 401k and hope to get a 7-10% mid-high risk fund.
so would it make sense to keep the cc debt and dumb the 5k in a mutual fund, or pay off the cc and start from scratch through my 401k? thanks much
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Tue Jul 31, 2007 10:27 pm |
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coaster
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If it were me, I'd keep the $5K in an interest-earning deposit account, pay off the CC debt as fast as possible through monthly discretionary cash, and as soon as that's paid off, start putting as much as possible into my 401(k)
~Tim~
Eye Candy : Why Whimsy
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Tue Jul 31, 2007 10:40 pm |
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madisonbrent
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i should also include that Im paying basically the min amount on the credit cards, because its all i can afford.
are you saying i should toss it in something returning like 1%? or like a mutual fund
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Tue Jul 31, 2007 11:54 pm |
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coaster
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You could put the $5K in a money market fund or a CD earning 5%
~Tim~
Eye Candy : Why Whimsy
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Wed Aug 01, 2007 12:10 am |
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BlankenshipFP
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I agree with Coaster - you need an emergency fund first of all - so you can take that $5k and put it in a CD. Secondly, put all of your efforts into raising cash to pay down the debt. Get a second job, eliminate cable tv, sell something, etc., to pay off the debt. Then, use the money that you were paying toward the debt to begin developing your 401(k) nest egg...
It's a tried and true method - works every day for people everywhere.
Jim Blankenship, CFP®, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Wed Aug 01, 2007 1:28 pm |
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Schmacker
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I know it doesnt match with conventional wisdom, but IMO:
1: commit to your self that once you eliminate that CC debt you will never get yourself in that predicament again
2: pay off the CC debt. That interest on those cards is a real drain. (and this is where my opinion will differ from the others) Once it is paid off you can use them as your EMERGENCY fund TEMPORARILY.
3. immediatley begin building that emergency cash find the others have mentioned.
4. then take full advantage of any company match in your 401k plan. Where else will you get a 100% + return on your money.
Thanks,
Schmacker
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Thu Aug 30, 2007 1:26 am |
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efflandt
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Our company 401k matches 100% of the first 4% of our salary contribution up to $1400. So if your salary was $35,000 or less, it would double that part of your contribution. And even if you make double that it would add $1400 to the first $2800 you contribute.
And that is tax deferred, so the amount deducted from your salary would be 85 to 75% of what you contribute (maybe less depending upon state income tax), depending whether you are in 15% or 25% marginal tax bracket. So it really pays over the years to have 150 to over 200% of what you contribute start compounding.
But if you are only making minimum payments on your credit cards, you have to make every effort to pay that down faster. And then make it a point to only use them for things you will have the money to fully pay off when the bill comes.
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Sat Sep 01, 2007 6:55 am |
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pf101
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I agree with Schmacker.
I understand the wisdom of having an emergency fund, but not when it's costing you money.
I would use the cash that you have (or if it makes you too nervous, keep $500-1000 back as an emergency fund but then pay it down ASAP) and pay off your credit card debt. If something bad happens, you can use your credit cards until you get your emergency fund built back up.
I would then put the minimum into your 401k that you need to so you get the full company match. That is free money, take it!
Once you're doing that, take the balance of what you would have been paying to your debt and put it into an emergency fund.
Once it gets to a point that you're comfortable with I'd look into establishing a Roth IRA.
You might want to consider getting a 2nd job. Your minimum payments are only around $200/month. If that is putting this much strain on you you might want to consider building a bigger buffer for safety. Or, look and see if there's anything you can trim out of your budget (cable, internet, cell phone, gym membership, cigs, drinking, eating out, coffee...those kinds of things are luxuries and should be long gone from your budget if you're carrying debt.
Good luck.
Personal Finance 101
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Wed Sep 12, 2007 8:56 pm |
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Apollo
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I would use 4K and pay for the CC (use 1K as an emergency fund and put it into a money market account or savings account) . This will leave you with 1K of debt on you CC. Make the same monthly payments on your CC that you did when you had 5K in debt.
You probably paid roughly $200 a month on your CC which means that in five months or so you should have paid off your CC.
I would now use the money which you needed to repay your CC to add to your emergency fund until you have at least six months of living expenses covered.
Make the minimum contribution required to your 401k plan to get full company match (you can increase your contributions once more funds are available).
After you have a comfortable cash cushion in your emergency fund you will have plenty of options on how to proceed with your investments.
Look for ways to reduce your expenses where possible and try not to buy anything with your credit card which you can't afford. It is always a good idea to pay off your credit card at the end of the month. I would not recommend to buy anything with your credit card if you can't pay it off with no more then three payments and don't max out your CC.
If you only pay minimum payments you're most likely just paying interest while the debt itself will see little reduction.
It is not smart to play it safe but it is safe to play it smart.
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Mon Sep 17, 2007 10:35 pm |
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