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Hello Fools!

1st Posting to this Foolish Board,

Help this Fool decide what to do! Here's my dilemma:

Like a fool, I'm swamped with credit card debt at 16% APR. My current plan puts me out of this
curse by Feb'99.

I'm also enrolled in my employer's stock purchase plan. For every 2 stocks I purchase with
after-tax dollars, they add 1. Whithin a two year period, I can sell the stocks I paid for, but forfeit
the "gift". If I hold on to the stocks for 2 or more years, I can sell all if I want.

So I'm effectively buying stocks at a 33% discount IF I DO HOLD ON TO THEM FOR 2
YEARS. I'm contributing a fair amount (in my world) to this plan. Purchases are executed quarterly
at the lowest daily closing price for the quarter (potentially increasing the discount).

Being desperate to start building my savings, I had the idea of pulling out of the stock purchase plan
for now and dump this money to pay off my credit card (this would put me out of debt 3 months
earlier).

I can't come up with some math to help me weigh one option against the other. Here are some
numbers for the Foolish angels that so kindly would roll up their sleeves to pull this fellow Fool out
of despair:

-Stock: HWP
-Quarterly Contributions to Stock Purchase Plan: $870
-Quarterly Matching by my employer if I participate and hold stocks for 2 years: $435
-Credit Card Debt: $4,700
-APR on Credit Card: 14%
-Planned Monthly Payments to Credit Card: $750
-C.C. Payments if Pull Out of Plan: $1,040 (and save approx. $110 in interest paymts).

Thanks in advance for your insight and recommendations.

Dominicus
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>>
Being desperate to start building my savings, I had the idea of pulling out of the stock purchase plan for now and dump this money to pay off my credit card (this would put me out of debt 3 months earlier).

-Stock: HWP
-Quarterly Contributions to Stock Purchase Plan: $870
-Quarterly Matching by my employer if I participate and hold stocks for 2 years: $435
-Credit Card Debt: $4,700
-APR on Credit Card: 14%
-Planned Monthly Payments to Credit Card: $750
-C.C. Payments if Pull Out of Plan: $1,040 (and save approx. $110 in interest paymts).
>>

You've already done most of the math on this one. Here's my take on the two options.

If you stay in the plan you make $325. This is the employer match ($435) less the additional interest ($110) you'll have to pay by not paying earlier.

If you pull out of the plan you "make" ($110) from the interest payments you don't have to pay.

This does not take into consideration what the stock price does, or how bad you want out of debt. Based strictly on what you make it looks like staying in the stock plan is the best choice.

~~paul
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Dominicus,

When I first read the subject of your post I was in shock at the thought of even considering buy stock on your credit cards... GASP!! How could you ever expect to beat the return of a 16% APR debt with any investment. It can be done, just not likely. After reading more carefully I understood what you asking. It seems your wondering weether to continue investing in your ESOP (Employer Stock Option Plan) at HP or cash in your current investment to pay off your credit card debt that much faster... (specifially 3 months or so).

That is always a hard question to answer. Ask yourself what your plan to do with the money in the ESOP. Is it for retirement, Education, perhaps a house? I think I would use the general rule of thumb about 401K's with company matching funds, which is Don't give up free money... To apply this to you It might mean keeping what you have for the minimum two years (That extra 33%).

The real question for you is should you continue investing in the ESOP of an extra $870/quarter or take that cash (it is after tax) and pay the cards off faster. Seems you have done some of the math to do the trade offs... That is something that only you can decide.

One thing you didnt mention was if you had any savings built up for an emergancy fund? I am in the process of building one for myself, but it is slow. I do have one investment in the market, a gift from my father, which I have not liquidated to pay off my CC debt. I am using that as and extreme emergancy reserve if ever needed - which I hope *Knock on my head* will never need. Right now I am putting away (trying to) $50-100/week to build up my emergancy fund in a savings account. If you really dont have that or at the 3 months living expenses guideline you might want to consider how I am doing it. Back off the ESOP for a bit, use what you have in there for emergancies only and start saving & Paying more off on your CC Debt.

Just a few suggestions and hope they help. Granted HP is a wonderful company, very reputable and respected. I use alot of HP Equiment where I work so I am rather familar with them.

Bottles

Rob

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Oops miscalculated the money you make.
If you stay in the plan, it will take you about three quarters to pay off the credit card. If you drop out of the plan it will take about two quarters to pay off the card.

I shoud have considered three quarters of employer match when you stay in the plan, and one quarter of employer match if you drop out of the plan. If you stay in the plan you make $1195. This is the employer match ($1305) less the additional interest ($110) you'll have to pay by not paying earlier.

If you pull out of the plan you "make" ($545). This is the interest ($110) you didn't pay plus the emplouer match ($435) when you rejoin the plan after paying off the credit card a quarter earlier.

~~paul
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Hi Dom!
I'm sure that you are very excited about the stock plan at work and feel that you'll pay off that $4700 but you forgot one thing... INTEREST! That $4700 is still out there and is interest bearing. You aren't going to win on this, my friend. Get your credit card paid off asap and then hit that Market with what you can afford to invest in. My cards are zeroed out all the time every month because I learned that this is MY personality. It's a gift to be able to invest with money that belongs to me instead of money that should have gone to past services rendered. GET GREEDY with yourself. All that hard work should get you to your financial goals but cheating yourself and not paying back those debts will set you back a couple more thousand. Use "Smart Calc" and see it for yourself. Thta interest will bite you in the behind, I promise you.
Immediately, pay off that $700 figure. Then chomp that $4000 figure in $1000 chunks. Yes, you can do without for a few months. I promise you, this will be worth it and you'll be glad you did! Pay it ALL off! Use a debit card and put those cards in a safe place.When you're done, join me and everyone else on the stock buying bulletin boards and let's all make some serious money. Money you can keep and don't owe a damn soul out there! Remember, many of us have been there. My cc debt was to the tune of $30,000. A second job and overtime had it paid off in exactly a year, even though an ex-spouse incurred it all. I know how painful it is but I feel that I owe everyone some "pay back"!
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