I have a car loan of $37k at a 6.39% interest rate, maturing in May 2030. I’m comfortable with the payments. I also have a credit card balance of $6k for a new AC unit, but it’s at 0% interest for the entire length of the debt.
Currently, I’m contributing 10% to my 401k on an $88k salary.
My main question is: Should I reduce my 401k contributions to just the 5% employer match and use the extra funds to pay off the car loan more quickly, or should I stick with my current setup? Any advice would be appreciated!
Given that the credit card balance is at 0% interest, it’s generally a good idea to prioritize paying off the car loan more quickly. This will reduce your overall debt burden and interest payments.
Given your situation, sticking with your current setup might be a good approach. The 401k contributions are essential for your long-term retirement savings, and with the 0% interest on your credit card, it’s not urgent to pay it off quickly. If you’re comfortable with your car payments and your 401k contributions are earning returns, keeping your current plan balances your short-term cash flow and long-term retirement benefits. Consider reviewing your budget regularly to ensure this strategy aligns with your financial goals.
Stick with your current 401k contribution. The power of compound interest is working for you! Paying off the car loan faster might feel good, but it could cost you more in the long run if you miss out on those extra 401k gains.
Think of it this way: Your 401k is like a retirement piggy bank. The more you put in now, the bigger the payout will be later. And who doesn’t want a bigger retirement piggy bank?