Timeline for How can I get out of debt AND save money?
Current License: CC BY-SA 4.0
13 events
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| Jun 1, 2018 at 1:06 | comment | added | NPSF3000 | In an absolute worse case scenario, where they absolutely must chose between 401k or credit card (and have no means to do both), the best stratergy is to contribute to 401k match, cash out, and then pay CC. | |
| Jun 1, 2018 at 1:04 | comment | added | NPSF3000 | "The credit cards are a higher rate than the 401(k) match. The 100% is a return, not a rate of return" It's usually 100% instantly (or over some period of vesting). "Because the 401(k) can't be collected for 35 years" Incorrect, it can be collected immediately. Think of it this way. $1 paid off a credit card saves 20c in interest a year. $1 in (matched) 401K pays $1 immediately AND then compounds both dollars at say 10% per annum (pre-inflation, like the CC debt) or 20c in the first year. | |
| Jun 1, 2018 at 0:55 | comment | added | Ben Voigt |
@NPSF3000: The credit cards are a higher rate than the 401(k) match. The 100% is a return, not a rate of return. You can't directly compare a rate to a return. Because the 401(k) can't be collected for 35 years, the 100% match is effectively a 2% increase in APY each of those 35 years (Feel free to check the math, pow(2, 1 / 35) = 1.02). Average market growth of 8-10%, plus 2%, is still far below the credit card interest rate.
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| May 31, 2018 at 18:19 | comment | added | Acccumulation | "does the fact that I'll be saving the former for a MUCH longer period of time than it takes to pay off the latter (hopefully) mean that I'll end up on top in the long run?" What's relevant is the difference in interest in the two scenarios, not how much total interest you'll get from your savings. Any interest you would make either way isn't relevant to deciding which option to take. | |
| May 31, 2018 at 12:58 | comment | added | NPSF3000 | "You will pay more in debt interest that you will earn interest in savings." What debt does OP have that's higher than 100% (of the 401k match?) General advise in this situation is emergency fund (small, say $1000), 401k (for the match), then snowball or avalanche depending on the person to irradicate debt. | |
| May 31, 2018 at 8:40 | comment | added | TomTom | "My advice would be to focus on the debt first" - no. FIRST you save for emergencies (3, then 6 months expenses). THEN you go for your debt, THEN you start saving up in ernest. But saving so that you dont need a credit if you have a car repair is better. Costs a little but handles life fluctuations. | |
| May 31, 2018 at 2:00 | comment | added | D Stanley | @JohnDoe For a metaphor, Suppose you have a leak in a boat, but can bale water at a slower rate. You can divide your effort between baling water and plugging the leak. The sooner you plug the leak, the sooner you can get all of the water out of the boat. | |
| May 31, 2018 at 1:55 | comment | added | D Stanley | @JohnDoe no, because interest on your debt is gone forever. You will pay more in debt interest that you will earn interest in savings. So long as the debt interest is more, you're going on the wrong direction. After the debt is paid off, you're behind the curve and won't ever catch up. | |
| May 30, 2018 at 22:30 | comment | added | John Doe | @Daniel Yes, I understand that interest is compounded both ways, but what I was wondering was if the sheer amount of time that I have the savings account outweighed the higher interest on the debt. | |
| May 30, 2018 at 22:04 | comment | added | Daniel | @John Doe: No, as long as you have debt with interest > the return % you make on your savings you are always better off paying off the debt first! You know, compounded interest works on your debt too, but not in your favor! | |
| May 30, 2018 at 18:13 | comment | added | John Doe | "...net of any debt ..." Agreed; that's why I was asking about specific resources of transitioning from debt removal to savings, and getting on track to a more reasonable savings plan. | |
| May 30, 2018 at 18:11 | comment | added | John Doe | That's part of what I was trying to figure out: even though I'm earning less interest on savings than I'm incurring on debt, does the fact that I'll be saving the former for a MUCH longer period of time than it takes to pay off the latter (hopefully) mean that I'll end up on top in the long run? | |
| May 30, 2018 at 17:27 | history | answered | D Stanley | CC BY-SA 4.0 |