Comments on: Dave Ramsey: Give Up a 401(k) Match in Order to Pay Off Debt

By: Ive

Ive — Thu, 17 Sep 2009 15:06:11 +0000

-If you have say $10k in credit car debt at 17%, (sometimes people have up to 22%) amortized over three years your payment is over 50% interest anyhow +fees. That means that its actually better financially to pay off the credit card debt than take the match.

-Dave says that primarily because most people have been taking out credit card debt and contributing to the 401k all along, and he wants them to break that cycle. Its about psychology, not math.

-Any decent financial adviser will tell you not to have a portfolio of 100% small cap stocks even though they are over the long term by far the best performing sector. Reason? Hardly anybody can handle seeing there portfolio make 50% swings year to year with calling their broker and making panic sells.

By: Hibryd

Hibryd — Mon, 14 Sep 2009 05:23:20 +0000

That’s nothing. I just heard Dave tell a woman NOT to take money out of her 401k for a down payment on a home, because she would pay penalties and taxes.
Which is totally, factually, WRONG. Why the hell is this guy a guru?

By: Wakenia Leonard

Wakenia Leonard — Tue, 25 Aug 2009 15:31:29 +0000

I really appreciate the advise that Dave Ramsey gives. I do agree with him in reference to the 401k situation. I see it as this. The overall goal is to be totally debt free and so what if you lose out on the company match for a time. Once you have paid off debts you have freed up so much extra that you can then invest as you like.

By: Scott Evans

Scott Evans — Sun, 16 Aug 2009 16:35:02 +0000

What Dave says is fore go the small contribution most people make while in debt, get out of debt as fast as possible, usually around 2 years or less, then put 15% away in retirement, first in matching 401k’s up to the match, then in roth ira’s, then any remaining in 401k’s or traditional roth ira’s. So following his plan the math will still win and behavior will be changed.

By: Kevin

Kevin — Fri, 06 Feb 2009 21:41:08 +0000

Although is sounds a little off the wall to not put away for retirement, the more I think about it, the better sense is seems to make to not contribute to the 401k retirement until one’s debt is paid off. What good is a retirement account if you are so deep in debt that your retirement fund gets eaten up when you retire. When you have no debt, you get to keep 100% of what you net to use how you want.

By: Liars!

Liars! — Sun, 01 Feb 2009 21:21:04 +0000

In a world filled with killing over money, broken families due to disagreements over money (divorces, arguments over wills), media glorifying wealth, and people orienting their lives around the pursuit of excess money, you are either lying or stupid if you state that handling money is only about “doing the math”. No one manages money purely based upon head knowledge. In fact, some of the people with the most head knowledge concerning money have ended up broke as a joke / suicidal over lack of money.

Also, it’s true that giving up the match for some people does not make sense mathematically. Although, every case is unique, so contributing to a 401k does not always make sense when you actually “do the math” (especially if you are contributing to it without a match or above the match.)

By: Andrea

Andrea — Wed, 17 Sep 2008 16:30:30 +0000

Wow, this was freeing for me (especially thanks kentuckyliz).

I currently run a nonprofit for the homeless. I started it over four years ago and worked for FREE for 4 years to ensure that we were able to provide food, clothing, etc.

Recently I had to start drawing a salary due to the dirty D word…divorce.

Though I am grateful to have a salary, unfortunately, it doesn’t cover all of my expenses. If I DON’T tithe, I come close…about $300 shy a month – which I think I can make up through other means. (FYI, I have NO consumer debt besides a car that has a balance of 4K…just mortgage and real cost of living stuff…no frills).

I have been so torn over the tithing issue…how can I tithe when it literally leaves me unable to live?????

I definitely give of my time and talents (and money if I can) without a second thought.

It is comforting to know that this is viewed as “tithing” also.

By: Steve

Steve — Fri, 16 May 2008 07:21:39 +0000

What many people miss on this is that even without a company match, you are still making money on the 401(k) because it is pre-tax savings.

For example, on 90K per year, if I put in 6% to my 401(k), I got $231 per pay period put into the fund. However, it only affected my net income by $140. Therefore, it only cost me $140 to save $231…which makes a $91 “profit” on my savings. I earned over 60% *before* the company match. Plus, that $231 is deducted from my gross income, so I pay less tax come April. With the company match, I had an additional $115 added to the account, giving me a total of $346 added to the fund for a net cost of $140. Again, this doesn’t include the tax savings.

While paying down consumer debt should be a priority, show me any credit card debt that delivers that kind of return. Unless you simply need the additional cash flow to survive or pay down some debt, I just don’t see the advantage of not contributing to the 401(k). This would have to be a dire circumstance.

This is one of many cases where going with the heart over the head simply doesn’t work.

By: Lee

Lee — Thu, 24 Apr 2008 20:44:17 +0000

Back to th 401k issue. I heard DR say something like if takes you more than 24 months (or maybe it was 36 months) to get out of debt, to continue contributing to the 401k. The point to stopping the 401k is to bombard debt with all the ammunition and guns you can grab your hands on! Also, stopping the 401k will get people more dedicated to paying off the debt faster so that they don’t have “loose” free money anymore.

By: fielding j. hurst

fielding j. hurst — Mon, 14 Apr 2008 01:46:52 +0000

great discussion. some miss the fact that dave is mainly talking about changing behaviors and not finance. missing the match obviously causes pain which fuels intensity to get out of debt. as he says, if you were doing math in the first place, you would not be in debt.

fjh
http://daveramseyguru.com/