401k Match and the Credit Card

Many employers offer a 401k plan as a source for retirement. 401k is the best plan available and you should always take advantage of it especially if there is a match involved. Since the match is free money you can't let it slide by. How many things can you think of that are free in this world? Now on the flipside if you have a credit card, it is probably charging interest and that eats into your disposable income. Therefore it must be paid off. Remember if you can't afford something, don't buy it.

Making a compromise

So how do you satisfy the 401k match while paying off the credit card? First off it all depends on how much credit card debt you have and the interest you're paying. The rule of thumb you should have is this: if you're paying more in credit card interest that what you can earn in your 401k plan, you should concentrate on paying the card off first. Forego the 401k plan and participate when you can afford it. Since an employer match is free money you still can't let it pass by unless you're so badly in debt. For the most part this is the plan you should follow: participate in 401k only up to the match and that's it.

The execution

Suppose that your employer will match up to $3,750 a year and you are paid biweekly with a $52,000 salary. The best way is to spread out the matching contribution through the whole year as in the table below.

Gross Pay	Percent	Biweekly Amount
$2,000	7.2	$144

So $144 every two weeks will be right around the $3,750 satisfying your goal. The reason to spread the 401k contribution throughout the entire year is for a few reasons: First you probably cannot afford to take a large amount from your paycheck otherwise you wouldn't need the credit card anyway. Second, a smaller amount each paycheck leaves more money to pay down on the credit card interest. Once you get your card paid off you can establish a more aggressive contribution to your 401k plan.

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