Should I pay off my student loan or pay into my 401K?

Tue, 15 Apr 2008 15:15:42 -0700

Q: I have about $2,000 saved up . . . Should I pay off my student loan, or pay into my 401K at work?

A: It depends on whether the nonprofit you work for matches your contribution to your 401K (or 403b) account. At many nonprofits, for example, if you contribute $2,000 into your 401K, your nonprofit employer will match it with $1,000. If this is your situation, contribute the $2,000 to your 401K.

On the other hand, if your employer does not match your contributions, it's better to put the $2,000 into an IRA (Individual Retirement Account), which you can set up at your bank (or broker, if you have one).

From a purely financial viewpoint, you would be better off with the IRA than paying off the student loan. First, the student loan almost certainly has lower interest fees than the interest income you would be earning on the IRA. Second, your contributions to your 401K are done before your taxable income is calculated: that lowers your payroll taxes and income taxes at the end of the year.

Of course, the intangible benefit of having paid off your student loan may be worth the relatively small difference on $2,000. Most importantly of all, congratulations on having saved $2,000!

What's Up With Warranties?

Steve Zimmerman — Sun, 01 Jun 2008 00:01:00 -0700

Q:I just bought a cell phone and got the extended warranty for $99. Then I bought a $150 back-up hard drive to use at home, and decided not to get the extended warranty. But I honestly don’t know whether either decision was right!

Blue Avocado Personal Finance- I know the feeling: standing at the checkout line and the question catches us off guard – “Would you like to buy an extended warranty with that?”

Even under an extended warranty, your gadget may not get fixed. The most common reasons products break --"normal wear and tear" and accidents--are seldom covered. And guess who gets to define “normal wear and tear.” Extended warranties make a bit more sense with big ticket items such as cars and stoves.

The best way to extend the warranty on your gadget is to purchase it with a credit card. Many credit cards, such as American Express and Visa, automatically double the manufacturer’s warranty as part of their service. Check with your credit card company and see if they offer the warranty extension. To be eligible for protection, you’ll need to fill out the warranty or product registration card when you buy your product and you’ll also need to keep a copy of the original receipt.

When something breaks outside of the regular warranty, call your credit card company (Visa: 1-800-882-8057; American Express: 1-800-225-3750). You’ll report your claim and have to fax them a copy of your original paperwork. Most likely they will ask you to bring in the product to a repair shop and get an estimate before they will reimburse you. The process is typically not very difficult – but if you don’t have your paperwork, you can’t even get started. (If this sounds difficult, it isn't any easier with an extended warranty.)

Stores make money by selling extended warranties, but they usually are not worth the money because products are far more reliable today than in the past. A Consumer Reports study showed that the likelihood that a digital camera will need repair in the first three years is just 8 percent.

The simple answer to that inevitable checkout line question is “No.” Save your money. And enjoy your purchase!

P.S. When you buy something, enter it Outlook with the date purchased, model number, serial number, help information (such as a website) and most importantly: where you'll be storing the receipt.

Personal Finance / Money Matters

Should I pay off my student loan or pay into my 401K?

What's Up With Warranties?