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I have some debt, including $2000 on one credit card bill (0% interest--due to medical expenses of child being born 2 yr ago), $1,900 on another credit card bill (3% interest--had to pay property taxes a few months ago and needed to put some bills on this card or else I would be in a financial hole), $2,500 on a HELOC (7%, due to divorce expenses)
I make about $70K a year, and each month put away $650 into my 401(k). I also have an additional 6% of my salary put into a state retirement fund (I have no choice with this), and I am matched 5% with this from the state. Other than social security, these are the only two mechnanisms I have for savings. I have been dilligently trying to cut expenses the past few months to get rid of this debt. I am 29 years old. During the previous 4 years, my monthly 401(k) contributions were anywhere from $300-650 a month.
The only way I can seriously eliminate this debt is to reduce the $ I contribute into my 401(k) account. Given the rather low interest rates I have on this debt, should I keep on contributing $650 a month into the 401(k)?
I am paying back the HELOC fastest (since it has the high interest rate), but I am more bothered by the two credit card bills, even though they are at 0% interest. I can indefinitely transfer the credit card balances to anothe credit card at 0% interest, less a 3% processing fee. Any suggestions?
If it's fixed and amortized over a long term, inflation might just wipe out that debt really quickly. But, inflation will also eat away at your stock portfolio. Might sound strange, but if you're betting on inflation, buy precious metals instead of paying low interest fixed debt. Reason being that in an inflationary cycle, debt will be eroded in real terms very quickly.
IMO, don't mess w/you investments or retirment $. Tough it out, get another job, cut down expenses. When I was in my 20's I needed more money, things were tight and I had a big chunk of money in m.funds. Easy way out was to just use that money, instead I got a part time job, worked long hours and ate ramin pride noodles or rice for every meal.
I am really glad now I went through that and left the funds alone. I still haven't touched it, it's helped me buy land, and add onto my house.
Work hard and long while you can and tough it out.
No more pop, pizza, eating out for a while. make everything from scratch.
Hope this helps, you'll get through it. Also, get a plan written down and talk to the c.card companies. They'll help you out if you have a plan. They did for me.
I have to go along with Cptn Caveman. Don't adjust your retirement savings. Adjust your spending habits. Do without a few nicities until you have the debt paid down, and then, if you find that it wasn't too painful, keep saving the money that you were putting toward the credit card debt.
The better you do now the earlier you will be able to retire. Even if you get to 50 and decide that you aren't ready to quit working, believe me, your attitude toward work is greatly improved just knowing that you could quit anytime you want.
Build good habits while you are still young.
At 29 you still have tons of time until retirement. One option is to eliminate the 401k contributions for now (you'll still be saving the 6% and getting 5% match) and use all that money to pay down your debts. As long as you don't put anything else on your credit cards you should be able to pay off your debt in less than a year. When your debts are payed off, fund your 401k again.
Your current savings plan is pretty good and you probably have a good headstart on your retirement when compared to other people your age. I don't think reducing your contributions for a year will hurt your retirement that much.
I think you need to determine how much interest your 401k contributions are earning and compare this to the interest costs on the two payments with the interest amounts. you might want to make smaller payments into the 401k and payoff the debt with the highest interest first. Leave the retirement matching situation alone. whenever an employer matches your amounts, that is a good thing! if you are putting $650 each month into a 401k, you could pay off your largest debt in only 4 months by shifting those payments. this would improve your monthly cash flow. then, you can pay off the lower amount of the debt and go back to putting in your full amount into the 401k. plus, it would probably help you sleep better at night not having to worry about it. The most important thing would be that after having paid off the debt, you return to making the401k dep and living on a budget to not get into the credit card debt thing unless there is an emergency!
I disagree SG. Sam needs to NOT rely on the retirement $. He/she needs to buy what he NEEDS, and not what he wants. A problem most have is expecting the wants and the needs may get put off.
Gut check time Sam, this is your hole and you dug it.
I'd try to find creative ways of paying off the credit cards (i.e. selling stuff on CL, take on another job, do some moonlighting)
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cut back on stuff
