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Author: JRockne One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308847  
Subject: Mini Dance Date: 11/17/2000 10:59 AM
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I paid off my United Airlines Card with savings yesturday. While I don't like to drop my savings, I felt that I needed to do this. Now I only have once card with a balance (at 3.4%) and my student loans.
My total debt is down to $15,000 (It was $50,000 eight years ago).

Side note: My debts would probably have been paid off by now if I had not fully contributed to 401ks and IRAs along the way. But I felt that it was important (and still believe it is important) to take full advantage of these savings vehicles.

Now here's the next question...

I now have a considerable amount of money in my retirment accounts (enought that if i let it go for thirty years and made no further contributions I could probably have a decent retirement). I have some savings accounts that are earmarked for college education of my two year old daughter and other "short term savings."

Should I stop contributing to retirement accounts and stop other savings until I slay the debt dragon?

I know how to do the math and the math says that probably should (at least with respect to the short term savings). I'm interested in the psychological affect of paying off the debt.

What do you think?

--Joe
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Author: Gemini2362 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49629 of 308847
Subject: Re: Mini Dance Date: 11/17/2000 11:49 AM
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Should I stop contributing to retirement accounts and stop other savings until I slay the debt dragon? ... I'm interested in the psychological affect of paying off the debt.


Hi Joe - I stopped contributing to my retirement account until I pay off my debt. It feels great to be slaying the debt dragon. And when my debt is payed off I know it'll feel great to invest. But in the meantime I have to get this monkey, er, dragon, off my back.

Marilyn

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Author: hluke25 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49630 of 308847
Subject: Re: Mini Dance Date: 11/17/2000 12:24 PM
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I say you keep what your are doing. if the only debt you owe is on a 3.4% card and student loans, then you will still want to invest. Historically, the stock market makes about 12% a year. if you are only paying 3.4 and about 8 percent on student loans you will be more profitable investing. keep what you are doing.

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Author: neodonism Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49635 of 308847
Subject: Re: Mini Dance Date: 11/17/2000 1:08 PM
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I think it depends on how much of your salary it would free up to stop contributing to retirement. If it is a significant amount...I would do it. I have the minimum contribution for my company's retirement plan just to stay enrolled...1%. This is what I plan to do until my CC debt is payed in full (8 more months!). Then I will hike up my 401K contributions and other investments.

If it helps...Maybe set a time limit. If your company allows you to change your enrollment every quarter...try it for 3 months and then go back to your normal contributions. See what feels better to you....progress on debt...or bigger retirement account.

I say....focus on slaying the debt. Especially because it sounds like you have a very healthy retirement account already. Then you can put more towards your daughters college account and your retiremnet!

don

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Author: SpeleoFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49653 of 308847
Subject: Re: Mini Dance Date: 11/17/2000 3:59 PM
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Should I stop contributing to retirement accounts and stop other savings until I slay the debt dragon?

I know how to do the math and the math says that probably should (at least with respect to the short term savings). I'm interested in the psychological affect of paying off the debt.

What do you think?


Hi Joe,

Remember that once the debt is gone, you can't go back and make up for lost time in the retirement accounts. If you can comfortably continue to save for your future it might be in your best interest to do so.

The other savings is a toss up (I wonder how many penalty boxes I'd get if I'd said "too close to call"). If the math says you're better off getting rid of debt, it might be a fine idea. On the other hand, if you're going to become complacent when the debt is gone and not replace the savings as quickly as you're paying off debt now, it might not be a good idea.

It's easy to think of getting out of debt as the finish line. Don't forget to pursue your savings goals just as aggressively when you owe nobody.

SpeleoFool.

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Author: mrbrolun One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49655 of 308847
Subject: Re: Mini Dance Date: 11/17/2000 4:27 PM
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Joe - you said you've done the math, so here's my take on the psych. aspect...

You've made full contributions during the earliest years of your career, which are the most important for compounding. You've got a good, solid base in your retirement account... if you stop contributing, do you have the discipline to put all the extra money towards the debt? (Seeing an a 10% increase in your take-home pay can make even the most committed of us want to buy that new 36-inch flatscreen TV...)

If you feel comfortable with your ability to stay focused, how about reducing the contributions to the max that your employer will match? Or, if your company doesn't match anything (or matches a percentage of your total contribution), reduce to 5% or something like that.

You'll still be saving for retirement, but you'll be out of debt alot faster. I'm sure it's a great feeling...I'm about 4 months away, and I can't wait to be done.

My 2c...

-Matt

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Author: gk2000 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49678 of 308847
Subject: Re: Mini Dance Date: 11/17/2000 10:19 PM
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<<how about reducing the contributions to the max that your employer will match? Or, if your company doesn't match anything (or matches a percentage of your total contribution), reduce to 5% or something like that.>>

i agree totally with this especially in your case where your debt is at quite a low interest rate
in my case my employer matches 80% of the first 6% that i contribute. so i'm making an 80% gain on my money before i do anything. that, combined with the tax advantage of the 401k and i would have to be in quite a financial straight before i would consider dropping below the 6% contribution. JMO

greg



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Author: lalcorn Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49744 of 308847
Subject: Re: Mini Dance Date: 11/20/2000 1:01 PM
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Should I stop contributing to retirement accounts and stop other savings until I slay the debt dragon?

I'm sure others will say the same thing, but I would contribute up to the amount that is *matched*, if any, and put the rest toward paying off the debt. Even though you have a low rate (3.4? you said), which is probably lower than what you'd make on investments, the psychological benefit of paying off the debts is significant.

Also, I'd say keep plugging at least a little money toward the daughter's college fund--college ALWAYS costs more than you plan, and goodness knows what costs will be in 16 years. You can always use any extra some other way after she graduates, if you're lucky enough.

Best of luck. sounds like you have a good plan in place.

-louise

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