Do I continue Contributing to 401K through baby step 2?

**justcrash** · 12-26-2007, 01:05 PM

It seems I could give myself a nice 6% raise to help pay off this debt (over 70K

) but I can't remember what Dave says about this in TMMO.

**3hungryboys** · 12-26-2007, 01:08 PM

Dave says if you are in FULL Money Makeover Mode (aka Gazelle Intense), and you can be out of debt in 18-20 months, you should suspend the 401k. The goal is complete, total focus on each individual step.

**dianne9106** · 12-26-2007, 01:44 PM

We also read his book and I agree with stopping your contributions whilst paying off your debt. However, he does warn against dipping into you retirement money already saved, especially if there is a tax penalty. You can also check out the website at https://www.mytotalmoneymakeover.com/index.cfm?
You can join for free for a week, but it's up to you after that if you can afford to join monthly or yearly. I joined for a week and found what I needed to get me going.
Good luck!
Dianne

**justcrash** · 12-26-2007, 01:51 PM

Originally Posted by 3hungryboys

Dave says if you are in FULL Money Makeover Mode (aka Gazelle Intense), and you can be out of debt in 18-20 months, you should suspend the 401k. The goal is complete, total focus on each individual step.

What if it is longer than 2 years? I am, of course, getting another job to work part tme, but even then, I am worried.

**3hungryboys** · 12-26-2007, 02:18 PM

Originally Posted by justcrash

What if it is longer than 2 years? I am, of course, getting another job to work part tme, but even then, I am worried.

Not sure what Dave would say there...but I would personally do EVERYTHING in my power to get it paid off in 2 years. At that point, revisit your options and see where you are. What kind of debt are we talking? Car, CC's , HEL, SL? I know Dave does say that if you have a HEL that is more than 50% of your annual income, to move it to BS6 so that you don't sacrifice retirement. Some people also do this with student loans, though I don't think HE would necessarily recommend that...

Clear as mud? LOL

**justcrash** · 12-26-2007, 02:21 PM

Originally Posted by 3hungryboys

Not sure what Dave would say there...but I would personally do EVERYTHING in my power to get it paid off in 2 years. At that point, revisit your options and see where you are. What kind of debt are we talking? Car, CC's , HEL, SL? I know Dave does say that if you have a HEL that is more than 50% of your annual income, to move it to BS6 so that you don't sacrifice retirement. Some people also do this with student loans, though I don't think HE would necessarily recommend that...

Clear as mud? LOL

CCs, car, mortgage, HEL (what is SL?) all of that good stuff. What is a BS6?

**3hungryboys** · 12-26-2007, 03:03 PM

Originally Posted by justcrash

CCs, car, mortgage, HEL (what is SL?) all of that good stuff. What is a BS6?

SL= student loan

Baby step 1 (BS1): save $1000 baby emergancy fund
BS2: debt snowball-pay off debt in 18-20 months
BS3: increase emergency fund to 3-6 months of expenses
BS4: increase retirement contributions to 15% of income
BS5: save for child(ren)'s college
BS6: pay off the house

So, if your HEL is more than half your income, go ahead and plan to pay off everything else in 18-20 months. Then save up your 3-6 months of expenses, then up retirement to 15%, then start funding kids' college(s), THEN attack the HEL, then the mortgage.

**justcrash** · 12-26-2007, 03:06 PM

Originally Posted by 3hungryboys

SL= student loan

Baby step 1 (BS1): save $1000 baby emergancy fund
BS2: debt snowball-pay off debt in 18-20 months
BS3: increase emergency fund to 3-6 months of expenses
BS4: increase retirement contributions to 15% of income
BS5: save for child(ren)'s college
BS6: pay off the house

So, if your HEL is more than half your income, go ahead and plan to pay off everything else in 18-20 months. Then save up your 3-6 months of expenses, then up retirement to 15%, then start funding kids' college(s), THEN attack the HEL, then the mortgage.

HEL = home equity loan, correct? So pay that off inbetween BS5 and BS6?

**3hungryboys** · 12-26-2007, 03:08 PM

Originally Posted by justcrash

HEL = home equity loan, correct? So pay that off inbetween BS5 and BS6?

Assuming it can't be done in BS2, then yes. If you move the HEL (home equity loan), can you pay off everything else in 18-20 months?

**justcrash** · 12-26-2007, 03:10 PM

Originally Posted by 3hungryboys

Assuming it can't be done in BS2, then yes. If you move the HEL (home equity loan), can you pay off everything else in 18-20 months?

That is a good question. I believe so.

**3hungryboys** · 12-26-2007, 03:19 PM

Originally Posted by justcrash

That is a good question. I believe so.

Then, yes, suspend the 401k and get that debt paid off!!!

**Michelle** · 12-30-2007, 04:33 PM

I'm not sure I agree with the suspending 401K to pay off debt. Sure it will get me out of debt faster, but the 401K really lowers our taxable income.

There's no way I can convince Dave to put that savings on hold. However, I am going to try to do TMMO as best as I can--doing what works for my family

**Buckeye5** · 12-30-2007, 05:21 PM

I agree with Michelle. my DH is 45 years old, me 43 yrs. old and we just got into the 401K a few years back. It does help our taxable income, but for me, my Dh was never on the DR plan until recently and staying in this plan gives him hope and a security feeling, and if this was the sacrifice I made to help him stay with me on the plan..then it was well worth it. We are putting in 4% with a company match up to 6%..we will be upping it to 6% in the next several months once we get some of our CC's paid off.