401k Contribution vs. Debt Reduction

**luckycat007** · 07-24-2011, 11:09 AM

I know this question has been posted before, and I've seen a variety of opinions... but we have what is I think a somewhat unique situation.

We're in BS2. Company matches 6%, at 100%. Hard to pass up. They also contribute 2% to 401k no matter what I do. I am currently contributing 6% + the 2% automatic contribution. If we stop 401k contributions we can pay off our debt in around 1 1/2-2 years.

Instead of turning off 6% entirely, I'm thinking of scaling back to 2%, with the 100% match, plus the 2% the company already provides. Or should I drop 401k entirely and burn off this debt (knowing I'll still get 2% auto contribution).

Is the threshold really about 1 1/2 years or so when making this decision?

And by "paying off debt" in 1 1/2 years I'm not talking about our house...just our other CC debt.

**frugal-fannie** · 07-24-2011, 11:23 AM

I would do what they match. And put the rest toward debt. It depends on the interest you are paying on your debt.

**Telephus44** · 07-24-2011, 12:05 PM

How long will it take to pay off your debt if you keep your contributions where they currently are? If it's not that much longer (say 2-1/2 years vs. 2 years) I'd be inclined to keep making the contributions.

**mateosbaby** · 07-24-2011, 05:54 PM

My dh and I just were talking about this the other day. He's getting a new job, and they match up to like 4% or something like that. We are going to do the match, but the rest will go toward our baby steps (we're on step 3) until we get to step 4 (contributing to retirement).

**khaski** · 07-24-2011, 06:35 PM

Originally Posted by Telephus44

How long will it take to pay off your debt if you keep your contributions where they currently are? If it's not that much longer (say 2-1/2 years vs. 2 years) I'd be inclined to keep making the contributions.

I agree. You don't give up free money in this day and age. Also, I find the advice to cease retirement savings while snowballingoutdated and bad advice during the recent recession. With social security and other services being shrunk day by day, your retirement and its financial health depend on you and you alone. The stock market has been volatile the last few years, but if you had not contributed anything in the last 2-3 years you would have missed some great deals.

**Mom2-3** · 07-24-2011, 09:54 PM

Personally, we kept contributing. There was no way I was giving away free money! DH's company matches up to 5%, so we kept our contribution at 5%.

I figured free money and we are almost 40. MAYBE if we were 20 we would have stopped contributions, but I doubt it. lol I still pick up pennies. Why? Um... it's free money!

Oh, and welcome

**Greebo** · 07-25-2011, 08:30 AM

DR's goal is to drive intensity. If you can be out of debt in <=2 years or so, then giving up that investment to speed the snowball is a motivation tool intended to keep you very aware of what you're giving up while you're still in debt.

Were I you, I would compare my snowball with and without the investing element, and determine how fast your choices would put you out of debt.