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A place for Get Rich Slowly readers to ask questions
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It is currently Thu Jul 31, 2014 2:33 am




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 Post subject: Debt Payment vs. Retirement
PostPosted: Wed Dec 26, 2012 2:00 pm 

Joined: Tue Apr 15, 2008 6:48 am
Posts: 526
Location: Arkansas
I haven’t committed myself one way or the other, but I’d like your input on the idea.

As of right now I have around $7,000 that is somewhat liquid that I plan on re-investing since its part of my retirement.

A thought hit me today that I could go ahead and pull the funds and then throw them at my Credit Union loan. That balance is around $8000 – 8500 (I don’t have the numbers in front of me). While it won’t completely pay it off, considering I will be tossing around $500 each month towards principal it wouldn’t take me long to demolish that debt. That opens up $448 a month.

From there I could really do some damage to the other debts since I would be tossing somewhere in the neighborhood of $600 a month extra towards their balance.

I am thinking that this move would allow me to get my credit card debts paid off a full year in advance. If that’s the case then I could utilize that third year that I WOULD have been paying credit card debt to pay myself back with interest. As of my December numbers I paid between 1200-1300 in min payments on my debt.

If I go this route that would mean that I’d put $12,000 back into my retirement for that 3rd year.

I’d still stick to the rest of my budget and what I had planned to deposit into the funds.

I will admit one thing that appeals to me is a year without paying the credit companies interest, but pulling that amount out of my retirement makes me a bit nervous.

I would greatly appreciate your opinions on why I should make this move or not make this move…. Or even your opinion on a combination of both.

Thanks for your insight, and I look forward to seeing what you have to say.

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 Post subject: Re: Debt Payment vs. Retirement
PostPosted: Thu Dec 27, 2012 8:45 am 

Joined: Sat Dec 22, 2012 8:51 am
Posts: 7
I would want to know some more information before making a decision such as:
1) Do you have some sort of emergency fund set up?
2) If you pull out the 7K in retirement is there a penalty?
3) What are the interest rates on the various debts?

My thoughts:
1) Without an emergency fund setup (at least 3-6 months) I would not pay more than I had to. Some may disagree but my reason is a solid emergency fund buys you time in case things don't go as planned and it's a great peace of mind knowing you have the cushion. Rash decisions are made when there is lack of time or money.
2) If its a credit union loan (auto loan?) which most likely has a good interest rate, why would you want to pay that off before tackling the credit cards which most likely carry much higher rates. I understand freeing up the $448 per month is huge but if its comparing a 6% loan to a 19% loan I'd tackle the 19%. If its an auto loan I'd think about driving a less expensive car.
3) Seriously analyze where you spend money and skimp on the little expenses (coffee, eating out, movies, etc) as they always add up to more than what one thinks. Use that additional money to help pay off debt.


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 Post subject: Re: Debt Payment vs. Retirement
PostPosted: Thu Dec 27, 2012 9:51 am 

Joined: Tue Apr 15, 2008 6:48 am
Posts: 526
Location: Arkansas
pilotaaron wrote:
I would want to know some more information before making a decision such as:
1) Do you have some sort of emergency fund set up?
2) If you pull out the 7K in retirement is there a penalty?
3) What are the interest rates on the various debts?


1) Yes... and by the end of Jan it will be over $500. Not a lot I know, but it's getting there. By freeing up the 448 I could easily have it up to a grand in a couple months time.
2)No penalities involved with this money
3)This is the next debt on my debt reduction plan. At this point in the game I'm not concerned with interest rates. Freeing up the $448 will really help me put a dent in the other debts really quick. For full disclosure this debt is a signature loan at 12%

Quote:
My thoughts:
1) Without an emergency fund setup (at least 3-6 months) I would not pay more than I had to. Some may disagree but my reason is a solid emergency fund buys you time in case things don't go as planned and it's a great peace of mind knowing you have the cushion. Rash decisions are made when there is lack of time or money.
2) If its a credit union loan (auto loan?) which most likely has a good interest rate, why would you want to pay that off before tackling the credit cards which most likely carry much higher rates. I understand freeing up the $448 per month is huge but if its comparing a 6% loan to a 19% loan I'd tackle the 19%. If its an auto loan I'd think about driving a less expensive car.
3) Seriously analyze where you spend money and skimp on the little expenses (coffee, eating out, movies, etc) as they always add up to more than what one thinks. Use that additional money to help pay off debt.


1) I agree with the emergency fund... but it's going to take me a long time to get to that timeframe point. Right now my min payments are close to 3 grand a month.
2) My higher interest cards that I could pay off only opens up $127 a month. I figured I'd have a much better rate of return by paying of the other one that opens up $448 a month even though the interest is lower.
3) I have a journal thread in that section... .I have cut out most every bit of my extras on this journey. I got rid of my cable and blockbuster by mail... don't have a house phone, etc.

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I can not dwell over that to which I have no control...


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 Post subject: Re: Debt Payment vs. Retirement
PostPosted: Thu Dec 27, 2012 10:07 am 

Joined: Sat Dec 22, 2012 8:51 am
Posts: 7
I think freeing up that $448 per month would really help then. Only thing I would be concerned about is liquidating your entire $7,000 in essentially readily available cash. I'd probably save at least $2,500 of it so you have a months expenses covered just in case and put the rest towards the loan. It all depends on job security and you're level of comfort too....if you've got a job thats not going anywhere than I'd be less concerned. A minor hiccup however could set you back without the emergency fund and would make it more likely to pull out the credit card to cover the difference.


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 Post subject: Re: Debt Payment vs. Retirement
PostPosted: Thu Dec 27, 2012 11:05 am 

Joined: Tue Apr 15, 2008 6:48 am
Posts: 526
Location: Arkansas
pilotaaron wrote:
I think freeing up that $448 per month would really help then. Only thing I would be concerned about is liquidating your entire $7,000 in essentially readily available cash. I'd probably save at least $2,500 of it so you have a months expenses covered just in case and put the rest towards the loan. It all depends on job security and you're level of comfort too....if you've got a job thats not going anywhere than I'd be less concerned. A minor hiccup however could set you back without the emergency fund and would make it more likely to pull out the credit card to cover the difference.


I can honestly say that my job isn't going anywhere. The only way I'd loose it is to screw up... I'll never be laid off.... there will always be criminals.

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I can not dwell over that to which I have no control...


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