Hi, I have about $1200 to put on credit card debt or contribute to my IRA for 2006 (I just started it and only have about $800 in the account). My credit card debt totals about $1300 at 15% interest. I am not sure if it will hurt me in the long term if I pay my credit cards rather than contribute. I appreciate your advice since I don't know much about this, thanks in advance for your help.
2007-01-23 09:57:51 · 11 answers · asked by irunwithbulls 1 in Business & Finance ➔ Personal Finance
Thanks everyone! FYI - Not only will I not use these cards again, the only reason I'm not cancelling them is my credit rating. They are getting frozen and put in the back of my freezer!
2007-01-23 10:08:56 · update #1
You have received allot of opinions, but
You need to do some calculations to determine the right move.
You will receive a tax break from making an IRA contribution, this is what I would do.
Figure your taxes both ways with and without making the contribution.
lets say that making the contribution saves you $90 off your taxes.
Now lets say your $1,200 is making 5% in the IRA, after one year that's $60, $60 tax free.
Now if we assume you can pay off the credit card in one year in twelve equal payments the total interest charge would be $108.04 (I have a nifty little ap on my pc that figures that out for me)
So, 90 + 60 = 150 - 108.04 = $66.08
Not a ton of dough but, IT'S YOUR MONEY!
You seem like you're pretty smart and starting down the road to being financially aware, a very important thing.
Run the numbers to see whats best for you.
Good Luck
2007-01-23 10:29:04 · answer #1 · answered by edoubleyou 4 · 0⤊ 0⤋
figure out a way to do both...and that doesn't mean minimum payments.
If you can't do that then pay the debt off in 12 months. Do not fund your IRA during that time...apply those payments to your debt. Do not allow yourself to go beyond that one year line. Anyone that can fund an IRA can pay off $1,200.00 in one year. After that apply those payments back to your IRA.
Always better to stop funding an IRA to pay off debt if the debt rate is higher then the earnings rate on the IRA....and 15% on credit card debt is pretty damned high.
As you go along, remember this...Do not take money out of your IRA or 401k or any other retirement source. Better to first stop making contributions to it...then take a loan from it...then as a last resort take a withdrawal. But it's only a last resort and only if the first 2 options won't work.
2007-01-23 10:44:14 · answer #2 · answered by digdowndeepnseattle 6 · 0⤊ 0⤋
Send the money to the credit card people. You will make 20% to 29% by giving them the money. Every month sent the total amount of the current monthly credit card payment to the IRA account ($100). By this time next year you will have more money than most people. Stay away from carrying balances on your credit card.
2007-01-23 10:08:12 · answer #3 · answered by whatevit 5 · 0⤊ 0⤋
You need to get rid of as much debt as you can fast as possible. That being said, you've already started saving for later, don't stop. If you stop completeley, there is no telling when you'll restart. You could cut back to $40 - $50 a month and put the extra toward debts. This way you won't grow accustomed to not placing deposits into your IRA and you'll keep making progress on that first million.
2016-05-24 01:59:20 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Put the money in the ira then cut the cards up and use you earnings to pay card off over the next six months or so.If you pay ioff the card and then use it again you will be right back in debt and still have no ira money,but if you put money in ira then you will focus on paying off card and not using it.
2007-01-23 10:24:54 · answer #5 · answered by Anonymous · 0⤊ 1⤋
Pay the card off. It's hard to earn 15% in your IRA. So you're losing money by investing while you have high rate debt outstanding.
2007-01-23 10:04:22 · answer #6 · answered by Anonymous · 2⤊ 0⤋
Pay off your debt first, then build your IRA. While you could be gaining interest on your IRA, you are paying interest in debt. Debt is never a good thing, unless it is for a house or for building a business.
2007-01-23 10:02:34 · answer #7 · answered by Anonymous · 0⤊ 0⤋
Pay credit card off first! Live a debt free life, you'll be glad you did.
2007-01-23 10:05:27 · answer #8 · answered by Bad Samaritan 4 · 1⤊ 0⤋
Stick it in your IRA...chances are you will pay off the cards and them charge them up again...I did. Unless you are really frugal and will not charge the cards up again.
2007-01-23 10:04:52 · answer #9 · answered by miztiffany 3 · 0⤊ 0⤋
Do both!
More towards the credit card!
2007-01-23 13:13:53 · answer #10 · answered by traderb550 3 · 0⤊ 0⤋