| Finance Moron Please Advise, CD vs 401K Contribution & l |
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kev021460
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 10 Nov 2005
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| Finance Moron Please Advise, CD vs 401K Contribution & l |
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Forgive me for no knowledge of financial dealings but...
I am currently refinancing my house to get cash out.
I currently have an 8 year car loan of 400.00 a month.
at over 7 percent.
What someone told me I could do is take some of the cash out and put it into a CD and borrow against that to pay off the car.
But that still means I would have a loan, the car would be paid off but I still have a monthly obligation of over 300.00.
My thought was to take the cash out, pay off the car loan and instead put 300 into my 401k, which my employer matches.
Which would mean I would be putting almost 600.00 into the 401k
Thoughts anyone?
Kev
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Thu Nov 10, 2005 5:48 pm |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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If you have an 8 yr. car loan at 7%, it sounds like you are living beyond your means (didn't the manufacturer have a better rate). I hope it is dependable and you will still be happy with it after 10 yrs. That said, I have an 11 yr. old 95 Maxima I bought May 94, and it is still in fine shape and a joy to drive, but I paid it off in 4 yrs. Last year I also paid cash for a 3 yr old Pathfinder at half the price of a new one.
Putting borrowed money into a CD and borrowing against that makes no sense at all. Unless you are in alternative minimum tax bracket, the home loan interest is deductable, you would pay tax on interest from the CD at your full marginal tax rate, and the loan against that would NOT be deductable. It could not be an IRA CD, because you cannot use an IRA as collateral for a loan. Smoke and mirrors.
I don't know what your fixed or variable refinance rate is or terms, or what investment options you have in your 401k. But $300/mo. matching funds is hard to pass up. My company only matches up to $1200/yr.
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Fri Nov 11, 2005 1:08 am |
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