Pay Off All Credit Card Debt Or Put Money Away Into Savings?
February 20th, 2009 | 
Author: I have one credit card that has a balance under $1100, I also wanted to begin contributing to my 401(k) program my job offers. My plan was to pay off my credit card debt over the course of 2 months by paying half of the balance on one month, and the other half in the next month. Also, I wanted to contribute approximately $300 a paycheck to my 401(k) plan. However, after incorporating my other monthly expenses into the equation, I would only have under a couple hundred dollars for 2 weeks. It’s important to me to eliminate my credit card debt, but should I risk not having a comfortable amount of money to put away in my savings? Like I said, with the plan I had in mind it would take me about 2 months to pay off my credit card balance, but I would be tight on money if there were ever a case that an emergency arose. What should I do?
I am a 23-year-old who recently began a new career. I have one credit card that has a balance under $1100, I also wanted to begin contributing to my 401(k) program my job offers. At this moment, my employer will not contribute until a year after I have been employed. My plan was to pay off my credit card debt over the course of 2 months by paying half of the balance on one month, and the other half in the next month. Also, I wanted to contribute approximately $300 a paycheck to my 401(k) plan. However, after incorporating my other monthly expenses into the equation, I would only have under a couple hundred dollars for 2 weeks. It's important to me to eliminate my credit card debt, but should I risk not having a comfortable amount of money to put away in my savings? Like I said, with the plan I had in mind it would take me about 2 months to pay off my credit card balance, but I would be tight on money if there were ever a case that an emergency arose. What should I do?
Couple of facts are missing:
1) how old are you?
2) does your company match any portion of your 401k contributions?
If your company matches anything 1,2,3,4, or 5 % put at least that amount in before you pay anything off! That is free 100& return on your investment! You can’t get that anywhere else!
If they don’t match, cut up the credit card and pay it off in the 2 months you stated. Even if it means eating Mac -n Cheese every night.
Then start saving an emergency fund, then contribute to your 401K.
I have used Dave Ramsey’s method and a good base for eliminating debt, and saving for the future.
Keep in mind investing is a long term commitment!
And right now the stock market is on sale!
Posted in eliminate credit debt
First, get rid of your debt.
Second, build up an emergency cash reserve.
Third, start contributing to the 401(k).
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Put some money away the first month, then in the next two months, get the credit card paid off. It’s not really a great time to be investing in a 401(k) plan at the moment anyways. Wait until the market gets back up before investing money in it, or you could lose it all. Just an opinion from someone who works at an accounting firm.
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Pay all your CC debt first and then contribute to your 401K. You should also have a separate savings account.
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Couple of facts are missing:
1) how old are you?
2) does your company match any portion of your 401k contributions?
If your company matches anything 1,2,3,4, or 5 % put at least that amount in before you pay anything off! That is free 100& return on your investment! You can’t get that anywhere else!
If they don’t match, cut up the credit card and pay it off in the 2 months you stated. Even if it means eating Mac -n Cheese every night.
Then start saving an emergency fund, then contribute to your 401K.
I have used Dave Ramsey’s method and a good base for eliminating debt, and saving for the future.
Keep in mind investing is a long term commitment!
And right now the stock market is on sale!
References :
http://www.daveramsey.com
Getting rid of credit card debt always has to be the best!
If you do hit an emergency you can always reborrow!
Economising for a couple of weeks as well will never do you any harm! Live frugally, you might find it gives you a great “didn’t I do well” feeling!
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You would have under a couple hundred dollars for 2 weeks if you paid off the credit card and contributed to the IRA first? I think that’s what you are saying… If that is the case I say pay off the credit card! It’s only 2 months. Start taking lunch / coffee/ something to drink to work with you so that you can save on buying those things. Look into a cheaper way of getting to work if you drive- walk, bus, etc… Spend those two months trying out the free entertainment in your area and if you are craving a nice restaurant meal pick up a bertolli frozen dinner or stouffers makes a nice frozen meal you can heat up in a skillet in about 10 minutes. Then pour yourself / and a date if the case may be… a glass of arbor mist or something and you’ve got a 2 person meal for $10 or so. Look at this as an opportunity to see how little money you can spend. Instead of renting movies get a library card and borrow them for free. You may not get to see the newest releases but oh well, is that the end of the world?! And, you do still have the credit card, the account hasn’t been closed? If you had an emergency- something that COULD NOT wait- you could use your credit card during these two months. Then once the card is paid off try living two more months like the two you just finished and put the money you were paying towards your credit card into a savings account. That way you’ll have a good start on an emergency savings. Then after those four months are up you can make a little bit smaller contribution to the savings until you’ve saved 3-6 months worth of expenses * meaning you would have enough to pay for 3 -6 months if you lost your job or were sick or injured. Good luck, and remember, it’s only a very short period of time. Look at it as a test of willpower. You may find that you enjoy things more because you figured out a way to do them cheap or free!
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