To pay off the loan, or to contribute? That is the question.

Changing subjects from some of the recent posts, here is an article in the Wall Street Journal that discusses whether one should first pay off the college loan or contribute to the 401(k).

What a dilemma! On one hand, it would make sense to max out on the employer match, but then how does that compare to the loan financing costs?

Beyond the mathematical question are a few more considerations that could play a role in the decision making process:

1) What is the rate of interest being charged on the loan? And what is the time period in which the loan could be paid off.

2) Is there a time period until when new employees have to wait to become eligible to participate in the plan?

3) Does the savings plan have a loan provision that could be used to make the college loan payments, in case of a pinch?

Everyone has to make their own decision based on their own financial situation, but these questions should at least get the thought process going to think of many more questions to determine the trade-offs that have to be weighed before an appropriate decision can be made.

What would you do?

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