Yep, another one of those threads.
I'm a daily lurker in the F&F forums (sometimes thrice-daily!) and I've gained a lot of knowledge here.
However, I need some help from you wise women to help me wrap my head around this:
Dh and I have a fairly tight budget. He works, I'm the SAHM with a token weekend job that brings in beans. We were debt-free except for mortgage/vehicles, and then we paid off our car. We owe on our truck, bought privately from his parents.
Anyway, this past year we accumulated credit card debt. It is more than I could pay off with our tax refund, and the card is a 10.99% APR.
I know about compounding interest, so I'm not excited about borrowing from our retirement savings plan, but the interest rate for a general loan is 2.875%. The total interest paid (if I paid it off over 5 years, which is a huge length....it would be within a year or two) is less than $300, whereas the total interest paid on my CC would be several thousand dollars over the equal loan terms.
I'm looking at Dave Ramsey's plan & he is saying to minimize your retirement contributions (we currently save 11%) until you have your CC debt paid off. If I do that, what is the difference between:
(1) Minimizing the contributions and NOT taking the loan: go down to our 4% match, which would free up $400/month to pay this bill
(2) Not minimizing the contribution & maintaining the 11% contributions BUT taking a loan at 2.875% (and not making the return on the borrowed money)
Does anyone have any insight on this? I'm wrapping my head around making us debt-free (minus house and truck) again in 2011. I know DR wants me to just pay the card down as fast as I can, but does it mathematically make sense in light of the APR versus the loan interest rate at 2.875????
Thanks for any help you can give me.
P.S. -- I ordered DR's FPU program and I'm optimistic that we're going to get out of the credit card game altogether this year, but I've got to tackle this first...
I'm a daily lurker in the F&F forums (sometimes thrice-daily!) and I've gained a lot of knowledge here.
However, I need some help from you wise women to help me wrap my head around this:
Dh and I have a fairly tight budget. He works, I'm the SAHM with a token weekend job that brings in beans. We were debt-free except for mortgage/vehicles, and then we paid off our car. We owe on our truck, bought privately from his parents.
Anyway, this past year we accumulated credit card debt. It is more than I could pay off with our tax refund, and the card is a 10.99% APR.
I know about compounding interest, so I'm not excited about borrowing from our retirement savings plan, but the interest rate for a general loan is 2.875%. The total interest paid (if I paid it off over 5 years, which is a huge length....it would be within a year or two) is less than $300, whereas the total interest paid on my CC would be several thousand dollars over the equal loan terms.
I'm looking at Dave Ramsey's plan & he is saying to minimize your retirement contributions (we currently save 11%) until you have your CC debt paid off. If I do that, what is the difference between:
(1) Minimizing the contributions and NOT taking the loan: go down to our 4% match, which would free up $400/month to pay this bill
(2) Not minimizing the contribution & maintaining the 11% contributions BUT taking a loan at 2.875% (and not making the return on the borrowed money)
Does anyone have any insight on this? I'm wrapping my head around making us debt-free (minus house and truck) again in 2011. I know DR wants me to just pay the card down as fast as I can, but does it mathematically make sense in light of the APR versus the loan interest rate at 2.875????
Thanks for any help you can give me.
P.S. -- I ordered DR's FPU program and I'm optimistic that we're going to get out of the credit card game altogether this year, but I've got to tackle this first...