In This Spe­cial Case, Di­vert Re­tire­ment Sav­ings to Pay High-In­ter­est Debt

The Washington Post Sunday - - Personal Finance - An­nie Sch­le­icher

Age: 35 Back­ground: A sin­gle pro­fes­sional who works as an as­so­ci­ate ed­i­tor for a news Web site, earn­ing about $44,000. The Penn­syl­va­nia na­tive lives in the Dis­trict and has no chil­dren. She owns a con­do­minium.

New Year’s res­o­lu­tions: Pay off $4,500 on her only credit card, build up a sav­ings cush­ion of at least three months of liv­ing ex­penses, and pay down her stu­dent loans.

Progress so far: She’s faith­fully kept track of her spend­ing and saved nearly $500.

She’s been pay­ing $200 a month to­ward her credit card debt. But be­cause of in­ter­est on the card, she hasn’t made much of a dent dur­ing the three months.

I rec­om­mended that she stop her re­tire­ment con­tri­bu­tions for the short term so she can put that money to­ward her debt. She’s done that. She had been putting 5 per­cent of her bi­weekly pay into her com­pany-spon­sored re­tire­ment plan. Be­fore tax, that came to $88.91 each pay­day. Af­ter taxes, she will have $59.15 each pay pe­riod to put to­ward her credit card debt.

Nor­mally, I wouldn’t sug­gest stop­ping all re­tire­ment con­tri­bu­tions, but Sch­le­icher’s com­pany con­trib­utes the equiv­a­lent of 10 per­cent of her salary to a re­tire­ment plan even if she does not con­trib­ute. If she left the com­pany now, she could take 80 per­cent of those com­pany con­tri­bu­tions with her. In a few more years, she could take 100 per­cent. Thus she can af­ford to di­vert those funds for a short pe­riod to get rid of her debt.

Her chal­lenge: She’s still strug­gling to con­trol her en­ter­tain­ment spend­ing. “It’s de­press­ing,” she said. “I see the cold, hard num­bers, and they tell me that I ba­si­cally have to be a her­mit and stay in all the time if I’m go­ing to end the month in the black.”

But as I told Sch­le­icher, this isn’t for­ever. Bud­get now, get out of debt now, and you can have more free­dom and fun later.

The next step: Cre­ate a bud­get and stick to it. She es­pe­cially needs to bud­get for vari­able ex­penses, such as car in­sur­ance. But Sch­le­icher has cut her ex­penses quite a bit. The only way for her to find more money to pay down her debts, in­clud­ing her stu­dent loans, is to get a part-time job. She’s ap­plied for three since our last meet­ing.


The in­ter­est on her credit card makes it dif­fi­cult for An­nie Sch­le­icher to pay off the bal­ance. Be­cause her em­ployer pays into her re­tire­ment plan, she can af­ford to stop her con­tri­bu­tions to it — tem­po­rar­ily — to pay off the card.

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