Making sense of "Snowball" effect

Warren Buffett recommends new investors to buy a mutual fund or ETF that tracks an index, like the S&P 500 or Nasdaq. One stock ticker he recommends is "VTI" which is pretty representative of the total stock market. You can open up a brokerage account and buy $9,000 of "VTI" stock. The stock market is not doing so well right now and people may be scared of buying in right now. If you look at the history of the stock market, it generally has been up and even when there are years of negative returns, it always jumps back up. You said buy low, sell high. Look at the market and tell me if it's low or high.

On the other hand, I see the personal satisfaction of paying off debt, even if low interest rates. Do what makes you feel good, with agreement from the wife of course.

Interest rates were at an historic low and I don't see interest rates going that low again in the near future so I would rather keep my monthly payments low and buy into the "low" stock market right now.

You said you have a 401k. What are you doing with the funds in there? You must be investing it in something. You can even open a brokerage and invest in the same thing with the $9,000. Stocks do not have to be intimidating.

 

That threshold is extremely low. So low that you could likely just pay the card off in 2 months anyway.

Some simple math. $5000 on a credit card transferred to another card for 3% is a one time $150 fee. Making payments on that $5000 with an average credit card interest rate of 18% would be $75 in interest charges per month. So unless you can afford a $2500 monthly credit card payment, you will save money doing the balance transfer.

 

So we don't have 401k, rather public employee pensions. There are two options given to us: a Traditional Pension which is fairly hands off with the investment of funds being handled on our behalf (low risk, guaranteed benefit), and a Member-Directed Plan, which is more hands on letting us dictate where the investments go (higher risk). Not knowing anything about investing at the time we took these jobs (and still not knowing much), we both opted for the safe bet of the Traditional Pension. We both also divert money each pay into an additional Deferred Comp fund. I just logged in to that account and it lists the investment plan for that account as "moderate volatility". Currently down roughly 17% since December... Wish I hadn't logged in to see that haha...

Luckily (or unluckily) we both have a solid 20 years left before we can retire, so all of this can and will change many times by then... But I will certainly take some time to start reading up on mutual funds and the like.

 

Dave Ramsey plan worked for my family. Ain’t flashy but proven to work.

ramseysolutions.com

good luck!

 

I don't think you are screwed either way you do it. You are in a good position. If you have calculated it out that using X amount of dollars you would have everything paid off in Y time using both scenario's, great go with the one that makes sense. Working for the govt as well, that deferred comp is basically a Roth IRA that you can both put like what 20k a piece in each a year? Get debt free as soon as you can and then make an agreement to up that deferred comp...we look at it like a bill every month.

 

We talked it over last night and agreed to take my route to get debt free the quickest w/ least amount of interest paid as well… I appreciate all of the info and help everyone has provided!

As for the deferred comp, yes, we both agreed that we need to start upping the deposit amounts as soon as we can, as much as we can.

 

How about a compromise here? Pay off the cards with the $9000. Then take the money that you paid monthly from one of the cards to put extra toward the tundra and take the other money paid for the second card and put into savings? Satisfies both points of view and gets your out of debt. We always carry a monthly zero balance and put almost everything on a card that gives us points…..

I always worry about a huge house issue or car repair and then that 0% interest card balloons to unexpected balance and end up paying a ton of money to stay ahead of the 0% promotion. I much prefer the prospect of carrying a minimal / 0 balance on the cards and steer clear of credit card debt if at all possible

 

JL Collins - The Simple Path to Wealth

That book is worth reading/listening.

 

This would be a good compromise for sure... We utilize a airline rewards card and a cash back card for every day purchases and pay it off weekly... Usually go with the flight card until our point bank is sufficient, then switch to the cash back and apply the earnings back to the balance periodically... So while we are totally blind to the ways of stocks and investing, we are fairly in tune with making our money work for us in the card game aspect... Haven't paid for flights in over 7 years and counting...

 

I am with you there......we don't have many investments and I don't really have the knowledge to know what's good vs what isn't. We both contribute the maximum to our retirements and save for the kids college funds. We hope that our two daughters will be able to graduate college with very minimal debt to start their lives. After they are out, I will definitely look into funneling some money into investments, etc to get the best bang for the buck.