You've got $3,000 in credit card bills at an 18% interest rate. Your employer has a 401(k) plan in which it will match your contributions, up to 10% of your annual salary. Should you pay off your credit card bills before you start putting money into the 401(k)? YES: Paying off an 18% debt, and thus avoiding 18% interest payments,
You've got $3,000 in credit card bills at an 18% interest rate. Your employer has a 401(k) plan in which it will match your contributions, up to 10% of your annual salary. Should you pay off your credit card bills before you start putting money into the 401(k)?
YES: Paying off an 18% debt, and thus avoiding 18% interest payments, is essentially equivalent to earning 18% on investments. Reducing your debts reduces your financial vulnerability.
NO: You need to get in the savings habit as soon as possible. You should take part of the money you would have used to pay off your debt each month and instead put it into the 401(k).
Instructions
Write a response indicating your position regarding the situation. Provide support for your view.
YES: Paying off an 18% debt, and thus avoiding 18% interest payments, is essentially equivalent to earning 18% on investments. Reducing your debts reduces your financial vulnerability.
NO: You need to get in the savings habit as soon as possible. You should take part of the money you would have used to pay off your debt each month and instead put it into the 401(k).
Instructions
Write a response indicating your position regarding the situation. Provide support for your view.
This problem has been solved!
Do you need an answer to a question different from the above? Ask your question!
Answer
We believe that the correct answer to this situation is both yes and no. Here is what we propos…View the full answer
Related Book For 
Financial Accounting
8th edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel
ISBN: 978-1119491057