Should I clear debt from 0% card before putting money into IRA?

[Guest shaselai]

I have some Credit card debt but they are all in a 0% apr card till August. I figure i can probably pay it all off (inc future expenses) by next months. Is it better to pay off all debt before doing IRA or I should let the 0% sit a while and use the available funds for IRA first? Obviously the earlier i put in the money for IRA the better but what are some of your veteran's thoughts?

[david rigby]

Obviously the earlier i put in the money for IRA the better

This is an assumption that the IRA investment cannot have negative returns.

[Guest shaselai]

Obviously the earlier i put in the money for IRA the better

This is an assumption that the IRA investment cannot have negative returns.

Too true, but generally if I play safe it should be ok. But back to topic, any suggestion on whether I should pay off the CC debt first or just ride with the 0% and put money into IRA? Thanks

[JanetM]

If I understand the question. Use current income/funds to 1- fund IRA or 2 -pay off debt charging 0%. My qestion to you, would you be able to pay the debt off before the interest rate increases if you fund the IRA? If yes, why not do it. If funding the IRA means the debt now costs you interest because it now charges interest, it only makes sense if the IRA earned MORE in earnings then the debt costs to service the credit card debt. (highly doubtful scenario)

[John G]

I concur with Janet, but....

You can probably do both. Set aside a fixed amount each month for your IRA (hopefully you are thinking a ROTH IRA) and set another amount aside for your credit card. This way to begin a dollar cost averaging program for the IRA. I agree, you want to wipe out the CC balance before it gets a real percent attached.

You can open a Roth/IRA with a small initial balance if you committ to monthly auto payments.

Yes, you are generally correct that having the IRA/Roth open longer means more time for the assets to grow, but a few months are noise and you might buy in at a near term peak. No one can tell you that buying the full Roth/IRA in January is a better strategy. Markets are just not predicatable on such a short term basis.

[Guest shaselai]

If I understand the question. Use current income/funds to 1- fund IRA or 2 -pay off debt charging 0%. My qestion to you, would you be able to pay the debt off before the interest rate increases if you fund the IRA? If yes, why not do it. If funding the IRA means the debt now costs you interest because it now charges interest, it only makes sense if the IRA earned MORE in earnings then the debt costs to service the credit card debt. (highly doubtful scenario)

Yea you are probably right, i think i will participate in the monthly charge and pay off my debt the sametime. Now all i need is to research and find what is the best company for the Roth...

[Guest mjb]

You have until Apr 15 to contribute to a deductible IRA for 06 which will give you a fed tax deduction of $600 (15%) to $1000 (25%) plus state tax savings on a $4000 contribution. You may also be eligible for a savers tax credit of at least $200. Paying off the debt does not generate any tax benefit. Q is whether you can pay off your debt by Aug if you open an IRA for 06. If you open a roth you get no tax benefit in 06 other than a saver's credit so it would be better to pay off debt by aug and then open roth IRA for 07.

[Guest archimedes_pie]

Mathematically speaking, fund your IRA's first. For two reasons; First, it feels good to have that nest egg working for you, it's an accomplishment and will change your attitude towards saving. Second, over the next 8 months you could easily make more than it costs to maintain 0% debt. HOWEVER, You have to be certain you can/will pay off the debt when the teaser rate is over, otherwise you may only dig your hole deeper. Hopefully, you still qualify for the ROTH IRA, if so, if you got in trouble with the debt you could change your mind and have a portion of the contribution returned penalty free, but this will count against your annual contribution limit.

Good Luck!

[John G]

"the best company for a Roth" ??

There are over 8,000 mutual funds, more than 10,000 stocks, thousands of bonds and hundreds of ETFs (exchange traded funds) to choose from. You really don't want to be thinking of "the best", first because you can't determine in advance any "best" investing strategy. No one can, not me or any so called "experts". Second, because your search will consume too much time. And, finally, because you just need one or two good choices. You don't want to swing for the bleachers on every pitch, getting doubles and singles each year will probably get you very good results.

To narrow your search, consider limiting yourself to NO LOAD mutual funds. These have no initial or subsequent commission. Further narrow your search to a broad based stock fund, no sector, country or other narrow base fund. Throw out anything with above average annual expenses. Throw out anything with above average annual fees. That will still leave you with hundreds of choices.

You might want to use the search options to look for key words like "beginner", "started", "no load", "index" (a low cost computer driven type of mutual fund), or "novice".