Something different

Taking a little bit different tack, I'm going to post some responses to questions that I've given on the few bulletin boards that I regularly visit. We'll get back to the overall Financial Planning process eventually....

Question:
I read a snapshot in another financial magazine about a single woman who makes good money (around $100k). Who was maxing out her 401(k) ($14k this year). She did have some cc debt around $16k, IIRC, some student loans, etc. Nothing overly major that caused strain on her budget. The magazine or planner that they had review her situation suggested that she cut back on her 401(K) contributions to pay more towards her debt. My question is why cut back on the 401(K) if you can comfortably fund it and pay for your debts? You can't go back in time to place money in the 401(k) for tax deferral and compounded savings. I believe it would be better to maintain the maxed out 401(k), cut back on spending and apply that towards the cc debt. It might take a bit longer to pay it off but the 401(k) would continue to grow.

My Response:
The planner was probably working from the assumption that expenses are fixed. You're right, cutting expenses would be the first place to look for funds to pay down debt. Reduction of the debt needs to take a high priority, and it's a matter of opinion as to whether or not that priority outweighs current contributions to 401(k).



That's it for now... more to come.

jb