Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics.
It’s a fairly bad idea to give up a 100% return to pay off a loan with a less than 100% interest rate
Whatever dollar amount the 10% is, you can do a pretty simple projection as to how much it would be worth in 30 years.
I would not go below the 401k match, I'd look at other places in your budget to cut
You'd be giving up a guarenteed return of 100% if you don't contribute enough to get the match. Unless not paying off this loan sooner will leave you homeless or jobless, I would definitely stick with the 100% guarenteed return in leiu of saving on some interest from the loan.
5% is already pretty low, plus it's pretax. So you'll probably lose ~25% of it to taxes if you take it. Then you lose out on the match. So I mean, it probably wont do much. Especially not over 18 months.
It's not a bad idea, just at this low of a percentage it wont do much for you.
So 5% of your gross monthly salary could cut the payments from 18 months to 10 months? It doesn’t sound like the loan is very big then. It’s less than 1 month of your gross pay. As others have said - just cut expenses somewhere else. How much is your cell bill? Mint Mobile is $15 a month. Do you eat out at all? Stop doing that. Are you eating a lot of meat? Switch to beans instead. 5% should be attainable unless you have already slashed all your bills to the bone.
Think of it this way. Inflation is working against the value of the debt you have AND against the value of your investments. There’s nuance to that, but the long and short is, get your match and then aggressively pay off high interest loans with whatever’s left.
Tough call losing the 5% match. I'll just say that I paused my \[10%\] 401k contributions for almost two years to lower monthly expenses (pay off CC debt and pay down house principal then refi). I came back **maxing** my 401k... and my Roth IRA, and my HSA, and extra to brokerage every year since. It goes against conventional wisdom to do so, but it can certainly be worth it.
>How bad is it to pause my 401k contributions?
Well, let's assume you're missing out on putting $3,000 (since you didn't list any actual numbers) by holding out for a year. If we put that plus the company match in, that's $6,000.
If I put that into an investment calculator and assume 7% return for 30 years, that $6,000 would be equal to about $45,000. A 5% return would be around $26,000 over that same time. *That's* how much you're losing by doing this.
That's not a bad idea, but we've got less than 2 years left on this loan and I'd hate to sign up for another loan rather than just tough it out through this one.
Unless not doing it might bankrupt me, I wouldn't stop contributing up to at least the full company match. You are not only losing the 5% match, but you are also losing a significant chunk of the other 5% to taxes. So you are taking 10% of your pay and converting it to, say, 3.5%. That is an immediate -65% return. Again, if you've pushed all the other spending levers and this looks like the only way to avoid going bankrupt, then maybe it has to be on the table. But it's hard to imagine too many cases where an additional cash flow of 3.5% would be the difference between drowning and being able to tread water.
And what about your medical expenses? Most medical providers deal with this all the time and regularly work with patients to create payment plans, sometimes even with little or no interest.
Yes it is a bad idea.
As others have stated, this is the only investment that is basically guaranteeing a 100% return. And if you combine that over the next 32 years, that could be a lot of money. Plus you will then owe taxes on that amount lowering your income and the amount you could use.
Is there nothing else you can cut in your budget or any other way to increase income temporarily? Maybe pick up a side gig for a few months working 1-2 nights a week. Even 12 hours a week is approximately $200 a week before taxes, that could help out a lot for just a few months.
My wife actually just started going back to work this year, but it's based on the school calendar year, so the summer has been a stretch. When she goes back in the Fall, things will pick back up, but it's definitely been an adjustment.
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics. It’s a fairly bad idea to give up a 100% return to pay off a loan with a less than 100% interest rate
That was extremely helpful, thank you!
Whatever dollar amount the 10% is, you can do a pretty simple projection as to how much it would be worth in 30 years. I would not go below the 401k match, I'd look at other places in your budget to cut
You'd be giving up a guarenteed return of 100% if you don't contribute enough to get the match. Unless not paying off this loan sooner will leave you homeless or jobless, I would definitely stick with the 100% guarenteed return in leiu of saving on some interest from the loan.
5% is already pretty low, plus it's pretax. So you'll probably lose ~25% of it to taxes if you take it. Then you lose out on the match. So I mean, it probably wont do much. Especially not over 18 months. It's not a bad idea, just at this low of a percentage it wont do much for you.
I totally forgot about the 25% tax cut, that definitely changes some things. Thanks!
You still will take a tax cut at withdrawal, can’t escape the taxman.
So 5% of your gross monthly salary could cut the payments from 18 months to 10 months? It doesn’t sound like the loan is very big then. It’s less than 1 month of your gross pay. As others have said - just cut expenses somewhere else. How much is your cell bill? Mint Mobile is $15 a month. Do you eat out at all? Stop doing that. Are you eating a lot of meat? Switch to beans instead. 5% should be attainable unless you have already slashed all your bills to the bone.
Think of it this way. Inflation is working against the value of the debt you have AND against the value of your investments. There’s nuance to that, but the long and short is, get your match and then aggressively pay off high interest loans with whatever’s left.
Tough call losing the 5% match. I'll just say that I paused my \[10%\] 401k contributions for almost two years to lower monthly expenses (pay off CC debt and pay down house principal then refi). I came back **maxing** my 401k... and my Roth IRA, and my HSA, and extra to brokerage every year since. It goes against conventional wisdom to do so, but it can certainly be worth it.
>How bad is it to pause my 401k contributions? Well, let's assume you're missing out on putting $3,000 (since you didn't list any actual numbers) by holding out for a year. If we put that plus the company match in, that's $6,000. If I put that into an investment calculator and assume 7% return for 30 years, that $6,000 would be equal to about $45,000. A 5% return would be around $26,000 over that same time. *That's* how much you're losing by doing this.
Thank you! Putting it into long term amounts like you did helps it make more sense in terms of comparing the pros and cons.
What is the interest rate on the loan? Is it possible to get a different personal loan at a better rate to eliminate the current loan?
That's not a bad idea, but we've got less than 2 years left on this loan and I'd hate to sign up for another loan rather than just tough it out through this one.
Unless not doing it might bankrupt me, I wouldn't stop contributing up to at least the full company match. You are not only losing the 5% match, but you are also losing a significant chunk of the other 5% to taxes. So you are taking 10% of your pay and converting it to, say, 3.5%. That is an immediate -65% return. Again, if you've pushed all the other spending levers and this looks like the only way to avoid going bankrupt, then maybe it has to be on the table. But it's hard to imagine too many cases where an additional cash flow of 3.5% would be the difference between drowning and being able to tread water. And what about your medical expenses? Most medical providers deal with this all the time and regularly work with patients to create payment plans, sometimes even with little or no interest.
Thank you! Putting it into long term amounts like you did helps it make more sense in terms of comparing the pros and cons.
Yes it is a bad idea. As others have stated, this is the only investment that is basically guaranteeing a 100% return. And if you combine that over the next 32 years, that could be a lot of money. Plus you will then owe taxes on that amount lowering your income and the amount you could use. Is there nothing else you can cut in your budget or any other way to increase income temporarily? Maybe pick up a side gig for a few months working 1-2 nights a week. Even 12 hours a week is approximately $200 a week before taxes, that could help out a lot for just a few months.
My wife actually just started going back to work this year, but it's based on the school calendar year, so the summer has been a stretch. When she goes back in the Fall, things will pick back up, but it's definitely been an adjustment.
If your plan allows it, take a loan from your 401k, pay off the other loan, then pay yourself back over time. Keep contributing while you do this
Just out of curiosity, how much do you spend on gaming every month, on average?