Pay off Cc's or invest?

[ccgirl]

Okay...so I am getting serious about paying off credit cards finally. I used to think that "we will always have debt" but after reading these boards, I know that is not true! Although I am a bit overwhelmed, I have read enough on here about the snowball method to feel I can actually do that. I have just started a new job and have not yet begun to invest in my 401K. It is not matched. I do have a fairly good amount already saved and still have 30 years until I retire. Should I not contribute to the 401K and put extra $$ toward paying off credit cards? Likewise, my children are 2 and 7. I was going to open up 529's for them but would I be better served to use that money to pay off credit cards?

Thank you all in advance for your thoughts.

 

[LovableGluttons]

Okay...so I am getting serious about paying off credit cards finally. I used to think that "we will always have debt" but after reading these boards, I know that is not true! Although I am a bit overwhelmed, I have read enough on here about the snowball method to feel I can actually do that. I have just started a new job and have not yet begun to invest in my 401K. It is not matched. I do have a fairly good amount already saved and still have 30 years until I retire. Should I not contribute to the 401K and put extra $$ toward paying off credit cards? Likewise, my children are 2 and 7. I was going to open up 529's for them but would I be better served to use that money to pay off credit cards?

Thank you all in advance for your thoughts.

Get rid of your debt. As long as you have to pay someone else to use their money, you are losing money.

Once you get rid of your debt, you'll have so much more capital to work with to fund retirement, college, and the rest of your life.

Good for you!

Just make sure you have some funds in an easily accessed account in the event an emergency expense arises before you get rid of your debt.

 

[buckler]

Without knowing the full picture it's hard to comment on the credit cards vs. retirement issue. But I can say that you should fund your retirement before you fund for education. You can always borrow for college or get scholarships, you can't borrow for retirement. It's like putting on your oxygen mask before putting on your child's on an airplane.

 

[ccgirl]

My DH and I each have $45,000 in a retirement account. We have not begun to save for our children's education yet but that is an extremely good point that you make. I am just really starting to feel overwhelmed with the $20,000 in credit card debt. At times, it takes my breath away. We were dumb a while back and took a home equity out for the debt we got into before. There is no way I want to do that this time. We are extremely fortunate we still have a good chunk of equity left but we could ahve had so much more if we didn't do that.

 

[JamieW]

My DH and I each have $45,000 in a retirement account. We have not begun to save for our children's education yet but that is an extremely good point that you make. I am just really starting to feel overwhelmed with the $20,000 in credit card debt. At times, it takes my breath away. We were dumb a while back and took a home equity out for the debt we got into before. There is no way I want to do that this time. We are extremely fortunate we still have a good chunk of equity left but we could ahve had so much more if we didn't do that.

I would worry more about the credit cards right now. Have you and your husband made a budget? Are both of you committed to getting rid of the debt?

 

[PinkRhombus]

The way Dave Ramsey always phrases it is "Would you take out a loan on the credit cards so you can have money to invest"?

Should answer your question...

 

[ccgirl]

You all made extremely valid points. To answer a previous question, yes we now have a budget. We are both commited to paying off the cc's. Me moreso but I pay the bills. i intend to have us credit card free in 18 mths. THanks again for your thoughts.

 

[Purseval]

If you pay off your credit card debts that is an investment, paying whatever the interest rate is that you would be paying on the debt.

 

[moongirl]

You definitely need to get rid of your CC debt first. Just think about the numbers: your CCs are probably charging you at least 15% interest. If you "invested" your money in reducing your debt, you are saving yourself 15% of interest on that money. If you invested it instead, there is not an investment around today that is earning anywhere near 15%.

 

[wdwfan16]

Based on what you have posted I would stop contributing to your 401K and put all that money, after taxes, and any other money on your CCs to get them paid off in less than 18 months.

 

[Ava]

Ditto what everyone else has said - pay off those CCs! The interest rate on your CCs is probably higher than the interest you'd make on any type of investment right now. Once you have the CCs paid off, you can take the $ you were paying towards them each month & invest it. Being debt-free will also be a lot more helpful than having $ in a 401K or 529 should you suffer a job loss or an unexpected expense.

 

[taurus8012]

please pay off credit cards asap. I had $24,375 in CC debt at 19% got it down to $4235 before losing my job 7 months ago. Lucky for me I had 10 months of rainy day savings before to keep the house,car& expenses going.Well 9months has past and I am still unemployed but hopeful. I couldn't imagine the pressure I would be under if I hadn't got most of the CC debt off the books. They also raised my % up to loan shark rates of %29.90.

 

[bumbershoot]

I like llnoe.com for questions like this. It's based on Dave Ramsey's system.

The general idea of the step where you're paying off debts is...if it will take you MORE than 2 years to be consumer debt free (not your mortgage), then continue to contribute to retirement. But if it will take you less time than that (as you stated it will), then stop contributing and put that money towards your debt.

So whatever you were contributing, at your old job, take that amount and put it in your snowball. Stop your hubby's contributions, and put that amount in your snowball.

DH wasn't contributing much, just 190 per month, and it wasn't really doing huge things in the 401k account, but it sure does big things towards our car loan!

Good luck, you can do it! It's astonishing to see what you can do when you get a budget and stop throwing money away. We've been lucky to have two windfalls (though one of them was severance, which of course means abject fear went along with the money), but instead of throwing that money away on disney trips, we put it towards the car, and we've paid nearly 10K just since August (and I should note that the windfalls weren't THAT huge). We'll be done, knock wood, with that loan before 3 years after we took it out , and it was a 5 year loan. If you asked us just one year ago if we could do that, we would have laughed in your face, then gone out to dinner giggling about the idea (and of course spending more money on nonsense).

 

[Evi]

Pay of your cc then don't use them lol really try to set a budget and pay with cash so you'll keep cc clean and when you do use them pay off balance at end of month. Then start a savings that will cover your bills for 6 months and keep that in savings. Then invest in retirment and then save money for regular investments. Ok heres the exception in lue of holiday gifts you and hubbie could always invest in something that you really want adding to it a little at a time and that way your also investing in something.

 

[ohlas]

You all made extremely valid points. To answer a previous question, yes we now have a budget. We are both commited to paying off the cc's. Me moreso but I pay the bills. i intend to have us credit card free in 18 mths. THanks again for your thoughts.

my question is how old are you, that is more important then how much or how long you can get out of debt...like if you are over 35 i would say invest xxx amt for retirement and then work out budget get a junky weekend job, to help get out of debt, hope on ebay and declutter all the junk you really dont want anymore...

you can be 35 one morning and wake up in you 50s the next with no investment.....

 

[gillenkl]

Get rid of the debt first and then save. Just my 2 cents because that's what we did. The only debt we have is our home. Good luck to you!

 

[richmond282]

You definitely need to get rid of your CC debt first. Just think about the numbers: your CCs are probably charging you at least 15% interest. If you "invested" your money in reducing your debt, you are saving yourself 15% of interest on that money. If you invested it instead, there is not an investment around today that is earning anywhere near 15%.

Ditto what everyone else has said - pay off those CCs! The interest rate on your CCs is probably higher than the interest you'd make on any type of investment right now. Once you have the CCs paid off, you can take the $ you were paying towards them each month & invest it. Being debt-free will also be a lot more helpful than having $ in a 401K or 529 should you suffer a job loss or an unexpected expense.

What these guys said!

 

[ruadisneyfan2]

My DH and I each have $45,000 in a retirement account. We have not begun to save for our children's education yet but that is an extremely good point that you make. I am just really starting to feel overwhelmed with the $20,000 in credit card debt. At times, it takes my breath away. We were dumb a while back and took a home equity out for the debt we got into before. There is no way I want to do that this time. We are extremely fortunate we still have a good chunk of equity left but we could ahve had so much more if we didn't do that.

Why is this a bad idea? I would think it's smarter to pay a lower % rate and be able to use as a tax deduction. No?

 

[ccgirl]

It was dumb because we refinanced with a lower interest so the home equity got rolled into our mortgage and we're now paying it off in 30 years as opposed to just a few. In addition, with the way the market is, we not longer have a lot of equity like we used to. If we sold now we would only have $70K to put down on a new house as opposed to 100K.

Live and learn I guess.

 

[punkin]

Yes, pay off the CCs. My answer would be different if you had a nice employer match on the 401(k). Also, consider paying off the largest interest cards first in your snowball. That is the cheapest way to do it, though I know Dave Ramsey thinks otherwise. Finally, do not cancel your CCs when they get paid off (it's better for your credit score). Just use them and pay them off monthly. NEVER charge what you cannot immediately pay for.