more 401k contribution or pay off cc?

[mindaugas]

I'm 30 and just got a job that offers a 401k. I have no retirement or savings beyond what I am about to be enrolled in. I am trying to decide if I should increase the amount of contribution to the 401k, lessening my take home pay. Or, should I increase take home pay by either not contributing or contributing very little so that I can use the extra take home to pay off credit cards. All my credit cards have high interest rates, but I only owe $7300 total. With diligence I could easily pay them off in a year or less and then increase or begin contributing. However, I'm also faced with my other debt which I need to pay off, school loans and a couple smallish auto loans. Company will match 50% up to a max of 3%. I was thinking of about 6% which should only be about $170 less per pay check according to the internet calcs.

So I guess the real question is: Should I pay off the debt fast and quick, or save for retirement right away?

[COguy]

If you want to take the totally mathematical approach.  I would contribute up to the employer match.  If you put in the 6% you will be essentially getting a 50% free return.  Also remember that that match is kind of factored into your pay so in a way if you don't take it you are leaving money on the table.

However, from a psychological perspective, some people feel very burdened by debt.  So, if you feel like your life will be better without debt there is a school of thought that would recommend skipping the 401k for a while.

No matter what you choose, I wouldn't put more than 6% into the 401K until you have your debt eradicated as that will have diminishing returns.

[mindaugas]

thanks, that's actually where my line of thought was leaning. My 3% (4.5% with employer contrib) auto-enroll starts tomorrow, I think I'll let that slide a pay period and see how it goes. The debt is a big burden on my wife's and my psyche. We need to clear these smaller debts to get to the big student loans.

[Uncephalized]

Return on the 401(k) is 50%, up to the 6% match maximum. Return on your credit cards is whatever your interest rate is annualized.

So your best strategy IMO is to contribute the 6% to take full advantage of the employer contribution, then use whatever is left over to pay down the credit cards as quickly as possible. Then once those are paid off you can increase your 401k contribution or add to other savings/investment vehicles as you see fit.

[follicular]

M-
If you have a very good credit rating and can obtain one of those introductory 0% interest for 12 months credit card promos, take it, pay off the higher interest CCs and max out your 401k option--as was said, 50% ROI automatic is hard to turn down (assuming you wait til you're fully vested before you move your money).
Just be careful to pay off the promo CCs before the 12 month deadline or you will likely see a huge interest rate assessed to the remaining balance on those CCs.