When to invest, after or before debt free?

I've been following Dave Ramsey and John Cummutta for years now. And, they both teach that its better to be debt free before you start retirement savings. We are around $32k in debt not including our house ($122k).

Just wondering what some of you believe?

Thanks,

JW

http://needtobedebtfree.blogspot.com/

The answer is, "It depends." There are a lot of factors that you did not mention in your post.

What are your APRs for your $32k in debt? First, try to get a lower rate if possible. If you get your loan APR down to below 6%, I would look into building your emergency fund and investing.

Are you putting anything towards retirement? Depending on your age, a 401(k) and a Roth IRA may be more critical than paying off your debt first.

I was just reading your blog. Is there any way to settle with the Michigan Unemployment Agency for just amount of the original overpayment? A quadruple penalty seems a bit harsh for their own mistake!

I was just reading your blog. Is there any way to settle with the Michigan Unemployment Agency for just amount of the original overpayment? A quadruple penalty seems a bit harsh for their own mistake!

That's exactly what I thought. I've been in the process over the last two months arranging a meeting with the Administrative Hearing Judge. Hopefully, I will get a hearing this March.

The answer is, "It depends." There are a lot of factors that you did not mention in your post.

What are your APRs for your $32k in debt? First, try to get a lower rate if possible. If you get your loan APR down to below 6%, I would look into building your emergency fund and investing.

Are you putting anything towards retirement? Depending on your age, a 401(k) and a Roth IRA may be more critical than paying off your debt first.

Currently the only debts we have that have more than 0% is the IRS at 8%, American Express at 10% and the City Taxes at 1.9%.

I will take your advice and try to get a lower rate at American Express.

Also, pay more than the minimum required on the highest-interest loans first. That way, you will lower your interest spent in the long run.

Good luck on that hearing in March.

I was just reading your blog. Is there any way to settle with the Michigan Unemployment Agency for just amount of the original overpayment? A quadruple penalty seems a bit harsh for their own mistake!

I felt the same. So, I recently made an appeal to the Michigan UIA Admistrative Law Judge.

Just waiting to get a hearing date now.

I also look forward and am interested in what people will say to this question. As much as I can gather though.....the advice that most have given me is to start now.....even though you have debt. You have to look at it like this: With an IRA or 401K you should exptect.....or hope to earn 8 percent over the long haul. With that said then you have to look at your debt. You mention that one of them is 10% interest rate. This should be knocked down aggressivley....but I sitll think you should contribute something to an IRA or 401K.....even if its only 50 bucks a month. My wife and I are in a similar situation....only all of our debt is in school loans...(not including the house)......and zero credit card debt. We have about 35k in school loans.....this does not prevent us from investing because.......the interest rate for the school loans is roughly 3.5 percent.......it makes no sense to throw all available cash at this debt when a potion of it could go to investing in an IRA that will earn 8% in the long run. But its pretty discouraging knowing that we will be paying this debt for over 10 years most likely. So I think there are lots of variables. We contribute 200 to a roth IRA and 200 to a 401k.......and I also have a state pension when I retire (teacher). We currently throw 400 a month at our school loan debt. About 100 bucks over the minimum payment due each month........some have even told me that I should not be paying 100 over the minimum on that debt because the interest rate is so low.....instead they say that we should put that money into the retirement accounts......but i would like to see that debt disapear faster even if its just a little bit faster.
Chris

I was glad to get the rest of my monster credit card debt ($3,000 down from a recent $7,000) into a 3.99% loan for 0% transfer fee for life this week (AmEx Blue Cash). I can start to save again instead of throwing all that extra capital towards that debt ($425 a month).

IMO, if the debt is a dire circumstance, stopping retirement contributions has merit.

In case of what little I know of OP, the size of the debt is moderate, so I would look to start a 401k. Company match is tough to pass up... so I would start retirement savings immediately.

It all depends on what your rate of return is on your investment. If you can get a larger return on your invest than what your interest is on your debt, then by all means invest. If not, your investment is not making you any money and you should pay off your debt.

-EJP-
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With the decline in the stock market and if your interest rate on the debt is below 10% it is probably not a bad idea to consider retirement savings.

Its always better to be debt free before you invest in anything. As if you are paying an interst of about 15% on debts, and probably you invest and get return of 10%, then best is to use it in paying of the debt first.

I'll always recommend to pay off debts at the priority

You could follow the example of my experienced grandmother. She is very conservative with investing. She puts all her money in the high yielding bank account at 12% apr paid monthly (1% every month) though I offered her many times to invest with me in business at 40% per year.
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