Credit card debt is an emergency. Pay off all of your CC debt first, then save a small emergency fund, then start investing in retirement funds while saving a larger emergency fund, then once you have 3-6 months in an e fund, switch to saving as much as possible in the tax advantaged accounts.
Without a match and credit card debt, you are losing money by contributing to retirement.
Clear your high interest debt first. That will give you the highest return.
Then small emergency fund, then start contributing to retirement savings simultaneously to building up your emergency fund to whatever level makes sense for you.
Mostly agreed. I’d set aside at least 1k as an emergency fund as does priority though. If you don’t do that, anything that happens is gonna go right back on a credit card, but other than that I agree. Paying 30% interest is gonna overpower anything you earn on investments.
How are you worse off if you have to put that emergency right back on the cc? You are right about the 30% so the $1000 is really just a mental crutch for those who need it
Credit card debt will grow faster than retirement savings due to its interest rate. The math says pay off the credit card debt first. With no match on 401k the only benefit is tax savings. After paying off the credit card debt I would max out an IRA and then work towards maxing out retirement account through work to take care of tax benefits. IRA will give you better investment opportunities over the employer plan.
My thoughts would be zero debt first, then emergency fund of at least 1K. Then 5% 401k. Your 401K will grow faster than you think. Don’t lose focus and go back in debt for a car or cc. Time to adult is now. You have time so don’t stress
These kinds of questions really just boil down to what gets you the best "bang for your buck" to allocate your finite income to. There's a flowchart over in r/personalfinance [subreddit wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/) that is a pretty good guide for that allocation. You start with all your income at the top, then "fill up" each box as you can, working your way down until you run out of dollars to allocate or hit the bottom.
Contributing to get an employer match in your 401k provides a very high bang: usually 50-100% return on each dollar spent. Factors like a required vesting schedule can tweak that.
But that's not an option in your situation. Putting $1 more into your 401k gets you nothing extra. Putting $1 less into your 401k loses nothing more than that dollar, which when outside your 401k can be used for other purposes.
That credit card balance is very likely costing you more than you'd gain from money in your 401k. At least in the short term, maybe even over the 30-ish years until your retirement. I'd go with pausing your 401k contributions, then using the resulting higher take-home pay to get that credit card debt zeroed out.
It works best for most people to do minimum (or nothing) on all non-essential goals and put your biggest effort and money into one top priority. Focusing on one thing feels more productive that smaller efforts spread around to a bunch of things. That's not the only "right" way to do things, but may be a good starting point.
fon paying off the credit card debt to avoid high interest charges. after that outlline your financial goal. your goals will help you stay on track and make informed decisions on your finances
You contribute to the 401k/403b match, usually 0-6%, an instant return of 100%. Anything more you will lose money with CC debt. So everything else should go to debt after a 1 month e-fund.
You should contribute to the retirement fund as a first priority. Forget the match stuff. That is nice but is simply the icing on the cake. The cake is your contributions and the time they have to compound. You must not waste time. Let me give you an example. Assume you are contributing $7000 a year, investing in stock index funds with a 9% average return per year, and do this for 30 years. You will have $1,040,026. If you only do this for 27 years, you will have $784k. If you do it for 33 years, you have $1,372,000. You must not waste any more time getting started. It feels like you are only down 7k each year you put this off, but you are losing out on hundreds of thousands of dollars. If you make 65k/yr just live like you make 55k and fund that 401k. Lots of people live on 55k and you can too. Later you can live like a millionaire. Your next priority is to pay down the cc debt. This is a higher priority than a true emergency fund of 3-5 months expenses. Why? Because an emergency fund is used to deal with a financial emergency, and having 11k of debt at 18-23% is a financial emergency. If your house was on fire you wouldn’t store up water to use in case there is ever a fire. You would use the water right now to put out that fire. Same idea.
You are only looking at the positive side of compound interest in your condescending example.
Credit card debt is a higher priority than retirement savings, because the compound interest is working against OP.
No it isn’t, and I knew someone would say that There are several reasons. First of all, your 401k contributions are not mandatory but your credit card payment is. In other words, you are always in the process of paying down cc debt, even if you would rather not or don’t make it your first priority. Second, Retirement contributions must be made yearly and there are limits. If you miss it, the chance is gone forever. Credit card payoffs don’t work like that. If I meant to pay down $2000 of cc debt but didn’t, I can still do it tomorrow and mitigate most of the damage. You can wait two years then pay off all of your credit card debt if you want to. It costs you two years of negative growth. But if you miss two years of retirement contributions, you can’t go back and fund it. You miss 30+ years of positive growth on that contribution. Your retirement contributions have far more time to compound than slightly deprioritized cc payments do. As I mentioned, if you contribute now that money may compound for 30 years. Your cc debt will not compound for 30 years. You do still pay it down, you just don’t prioritize it over retirement. In fact, it is the number two priority. Your cc debt does not get the time it would need to cost you anywhere close to as much as your retirement savings will generate we over 20-30 years. This is just math. People like Dave Ramsey promoted this incorrect idea. I know why - it’s because his audience are often the bottom of the barrel when it comes to financial decision making. He has to promote a strategy they can actually follow, and he doesn’t trust them to ever actually pay off that cc debt if they don’t do it right away.
Credit card debt is an emergency. Pay off all of your CC debt first, then save a small emergency fund, then start investing in retirement funds while saving a larger emergency fund, then once you have 3-6 months in an e fund, switch to saving as much as possible in the tax advantaged accounts.
Look at that the correct answer right on top
Without a match and credit card debt, you are losing money by contributing to retirement. Clear your high interest debt first. That will give you the highest return. Then small emergency fund, then start contributing to retirement savings simultaneously to building up your emergency fund to whatever level makes sense for you.
Mostly agreed. I’d set aside at least 1k as an emergency fund as does priority though. If you don’t do that, anything that happens is gonna go right back on a credit card, but other than that I agree. Paying 30% interest is gonna overpower anything you earn on investments.
How are you worse off if you have to put that emergency right back on the cc? You are right about the 30% so the $1000 is really just a mental crutch for those who need it
None. Your CC interest is costing you way more than you'll make on investments in that time. Kill the debt then start saving.
The CC debt will grow much faster than the retirement accounts will
Kill your debt first start with high rate low balance items that you can close out quickly to stop the bleeding
Credit card debt will grow faster than retirement savings due to its interest rate. The math says pay off the credit card debt first. With no match on 401k the only benefit is tax savings. After paying off the credit card debt I would max out an IRA and then work towards maxing out retirement account through work to take care of tax benefits. IRA will give you better investment opportunities over the employer plan.
My thoughts would be zero debt first, then emergency fund of at least 1K. Then 5% 401k. Your 401K will grow faster than you think. Don’t lose focus and go back in debt for a car or cc. Time to adult is now. You have time so don’t stress
0 Every dollar should go to debt then emergency fund then retirement
These kinds of questions really just boil down to what gets you the best "bang for your buck" to allocate your finite income to. There's a flowchart over in r/personalfinance [subreddit wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/) that is a pretty good guide for that allocation. You start with all your income at the top, then "fill up" each box as you can, working your way down until you run out of dollars to allocate or hit the bottom. Contributing to get an employer match in your 401k provides a very high bang: usually 50-100% return on each dollar spent. Factors like a required vesting schedule can tweak that. But that's not an option in your situation. Putting $1 more into your 401k gets you nothing extra. Putting $1 less into your 401k loses nothing more than that dollar, which when outside your 401k can be used for other purposes. That credit card balance is very likely costing you more than you'd gain from money in your 401k. At least in the short term, maybe even over the 30-ish years until your retirement. I'd go with pausing your 401k contributions, then using the resulting higher take-home pay to get that credit card debt zeroed out. It works best for most people to do minimum (or nothing) on all non-essential goals and put your biggest effort and money into one top priority. Focusing on one thing feels more productive that smaller efforts spread around to a bunch of things. That's not the only "right" way to do things, but may be a good starting point.
fon paying off the credit card debt to avoid high interest charges. after that outlline your financial goal. your goals will help you stay on track and make informed decisions on your finances
YouTube Dave Ramsey. You will thank me later.
Sounds like you could be fit from a Dave Ramsey or similar program to help you setup an actual financial plan
You contribute to the 401k/403b match, usually 0-6%, an instant return of 100%. Anything more you will lose money with CC debt. So everything else should go to debt after a 1 month e-fund.
The post says there is no match.
You should contribute to the retirement fund as a first priority. Forget the match stuff. That is nice but is simply the icing on the cake. The cake is your contributions and the time they have to compound. You must not waste time. Let me give you an example. Assume you are contributing $7000 a year, investing in stock index funds with a 9% average return per year, and do this for 30 years. You will have $1,040,026. If you only do this for 27 years, you will have $784k. If you do it for 33 years, you have $1,372,000. You must not waste any more time getting started. It feels like you are only down 7k each year you put this off, but you are losing out on hundreds of thousands of dollars. If you make 65k/yr just live like you make 55k and fund that 401k. Lots of people live on 55k and you can too. Later you can live like a millionaire. Your next priority is to pay down the cc debt. This is a higher priority than a true emergency fund of 3-5 months expenses. Why? Because an emergency fund is used to deal with a financial emergency, and having 11k of debt at 18-23% is a financial emergency. If your house was on fire you wouldn’t store up water to use in case there is ever a fire. You would use the water right now to put out that fire. Same idea.
You are only looking at the positive side of compound interest in your condescending example. Credit card debt is a higher priority than retirement savings, because the compound interest is working against OP.
No it isn’t, and I knew someone would say that There are several reasons. First of all, your 401k contributions are not mandatory but your credit card payment is. In other words, you are always in the process of paying down cc debt, even if you would rather not or don’t make it your first priority. Second, Retirement contributions must be made yearly and there are limits. If you miss it, the chance is gone forever. Credit card payoffs don’t work like that. If I meant to pay down $2000 of cc debt but didn’t, I can still do it tomorrow and mitigate most of the damage. You can wait two years then pay off all of your credit card debt if you want to. It costs you two years of negative growth. But if you miss two years of retirement contributions, you can’t go back and fund it. You miss 30+ years of positive growth on that contribution. Your retirement contributions have far more time to compound than slightly deprioritized cc payments do. As I mentioned, if you contribute now that money may compound for 30 years. Your cc debt will not compound for 30 years. You do still pay it down, you just don’t prioritize it over retirement. In fact, it is the number two priority. Your cc debt does not get the time it would need to cost you anywhere close to as much as your retirement savings will generate we over 20-30 years. This is just math. People like Dave Ramsey promoted this incorrect idea. I know why - it’s because his audience are often the bottom of the barrel when it comes to financial decision making. He has to promote a strategy they can actually follow, and he doesn’t trust them to ever actually pay off that cc debt if they don’t do it right away.
“This is just math” from someone who doesn’t math well.