Should I suspend my 401k contributions to pay off debt?

[Wcross]

I have been putting in 15% for the past couple of years. Due to an unfortunate series of events I have 3000.00 charged on a credit card. I am able to pay 350 a month comfortably right now. If I cut the contributions down to 6% (in order to get the company match of 3%) I will be able to throw around 800 a month at the debt.
Would you just keep paying what you could afford or lower your contributions for six months and wipe it out quick?

[lizziegrace]

1. What's the interest rate on the credit card? n/t

[Wcross]

7. It's 7.99% but I could transfer it to a 0% if needed.

I just hate being behind (in debt).

[Fleshdancer]

13. I would transfer it and then just keep making the $350 payments. eom

[Deja Q]

2. I've done it and have thought of doing more if I must.

#1 issue, period, is to pay off the debt. Nix the interest rates.

[sendero]

3. That is a really tough question..

... and the answer depends on lots of things not spelled out. How old are you? (that's a rhetorical question, I wouldn't reveal my age here), how exactly does the matching work (are you saying that they match 1/2 up to a max of 3%?) how much retirement money do you already have socked away compared to your needs? etc etc etc.

It's more than a simple numerical calculation because

1) of the matching funds
2) because the 401K money is sheltered, and money not put there is not and there's no way to shelter it later

Let us know what you decide :)

[lizziegrace]

11. Perfect points

Not only would you be reducing your contribution, but possibly losing out on your employer's contribution.

[trof]

4. Enough in your 401K to cover the debt?

This is a bit complicated, but it worked for me.

You MAY be able to borrow enough from your 401K to pay off the credit card debt.
Generally you can BORROW up to 50% of what's in it.

You will (possibly) be earning less "return" on the money while it's out of the 401K.
But you WILL have to pay interest on the 401K debt (while you repay it in monthly installments),
EXCEPT you're paying the interest to YOU!

It's kinda crazy.

Check with your HR folks or whoever administrates the plan.

[trof]

9. A bit more about borrowing from 401K.

Don't know if the same rules still apply.
I did it in the 90s to take advantage of an investment opportunity.
Briefly, I found a place where I could get a higher rate of return than the interest rate I would pay on the 401K loan. The "loan" basically paid itself off with a tidy profit.

[pagerbear]

12. But if you quite, are laid off, or in some other way your job ends

...any unpaid balance is considered a premature distribution <i>unless</i> you repay it right away.

[Bunny]

5. Yes. But only if you are serious about paying off the debt.

And it sounds like you are. :thumbsup: Get out of debt, it's a farking yoke that prevents you building security.

[Rabrrrrrr]

6. If the credit card is low interest, I wouldn't change a thing. But, what

you could do, if your employer is willing to do it, is have them take your contribution down to 6% as you suggested, until you have the credit card paid off. Then, crank your contribution up to 20% or 25% of whatever it will take to still end up putting the 15% into your 401k you would have contributed this year.

Of course, it's close to the end of the year now, so that mightn't be doable.

My suggestion is not to cut the 401k contributions at all, unless your credit card is above, maybe 10%. Once you don't put money into a 401k, it's never there, and won't gain interest; I would consider the interest I'm paying in the credit card as part of my dispoable income, and just eat it. If it's $3000, and you pay $350 a month on it, it'll take you about around 10 months and cost you about $300 at 10% interest. If you don't contribute to your 401k and pay $800 a month, you'll have the card paid in 4 months, pay about $100 in 10% interest, and you will lose $2200 to your 401k.

Unless the interest rate is really high on the card, it's not worth doing.

[Midlodemocrat]

8. I agree with Rabrrrrrr. $3000 isn't a huge amount to owe

and if you can comfortably afford $350, maybe you can stretch and afford $500.

Either way, I wouldn't touch the 401K. But, I don't like to think about touching the retirement accounts for anything besides retirement.

[flvegan]

10. Find another lender. One that offers a card interest-free (or at 2%) on

transferred balances. Pay off the $3k card with that, send them $300/mo and be done with it in 10 or 11 months. Use the extra $50/month to buy me things.

[Wcross]

14. Where I work we can change % online anytime we want.

It takes a month or so to actually change on the check. They use Fidelity investments as a provider. If I can knock out this credit card debt I would bump it back up to 15%. I could then use the 350 a month towards my truck note which has a balance of 3200.00. I could then use both of those payments to bump off the mortgage which has a balance of 10,200 as of this months payment.
Lately I have been nervous about debt. I am more than willing to forgo a couple of bucks at retirement to remove this nagging feeling I get every time I mail out a payment.