Does it make more sense to utilize alternative savings to pay off a car loan debt in full, so i can contribute a higher percentage of gross salary to the 401(k)?
2007-07-01 00:35:36 · 7 answers · asked by Eric F 1 in Business & Finance ➔ Investing
There are normally two advantages for a 401(k) plan: the company match and the reducing of your taxable income. Both are things you should consider taking advantage of. At a minimum, I would suggest you put enough money into the 401(k) to receive the company's matching amount... otherwise, it's like throwing free money away!
What I would suggest is to split your money up for now... put part into the 401(k) to earn the company match, and put the rest into a high yielding money market account at a place like ING Direct (www.ingdirect.com) or E-Loan (www.eloan.com) to establish an emergency fund to be used when an unexpected need comes up. When you've saved $1000 in your emergency fund, start upping the payment on your car loan or any credit card balances to pay them off (starting with the one with the lowest balance first). Once you've paid them all off, I'd increase my 401(k) contribution or start another savings program.
2007-07-01 04:44:53 · answer #1 · answered by Anonymous · 0⤊ 0⤋
If you have some savings in a taxable account, and you can use them to pay off a car loan, it would almost always make sense to do so.
Let's say you were paying $300 a month on a car loan, had $3000 in "alternative savings", and owed $3000 on the loan. To get the $300 each month to pay the loan, you actually need to earn about $400 before taxes, etc...
So if you use your "alternative savings" to pay off the loan, and defer an extra $400 a month into your 401(k), your net "free pay" each month will be the same, but you will have an extra $4,800 a year growing for your retirement.
Remember, fools pay interest, smart people earn interest!
You should do the math for your particular situation to see just how much extra money you will have later on if you pay the loan off: this calculator will help:
2007-07-01 05:58:09 · answer #2 · answered by Anonymous · 0⤊ 0⤋
The sooner you get started on the 401k the faster it will grow.
Starting a 401k is a bit like starting a family, if we waited until everything was perfect we might never get started.
If your company matches your contribution you should start immediately putting in an amount up to the match if at all possible. If not, then put in a small amount and increase it when you have the car paid off.
2007-07-01 00:51:23 · answer #3 · answered by Don 5 · 0⤊ 0⤋
If you can pay off the car, why not? Save yourself the interest
Contribute as much as you can in your 401K up to the limit, but always up to the companies match!
2007-07-01 00:40:20 · answer #4 · answered by Maeflower 3 · 0⤊ 0⤋
yes, but the 401k money won't be easily available to you for a short term cash need, like your alternative savings is.
2007-07-01 02:29:10 · answer #5 · answered by hottotrot1_usa 7 · 0⤊ 0⤋
You tell me.
2007-07-01 00:39:57 · answer #6 · answered by Anonymous · 0⤊ 0⤋
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2007-07-01 00:38:29 · answer #7 · answered by usama 1 · 0⤊ 0⤋