Good thing I haven't made any changes yet then. Thank you for clarifying that.

Well, at the risk of unclarifying things, let's assume...:

- Debt is $10,000 at 8% payable monthly over 10 years. That gives a minimum monthly payment of $121.33.

- $1500/mo pre-tax is available; marginal rate is 28.4%

With this much, you could

1) put $1330.55/mo into the 401k and use the remaining after-tax ($1,500 - $1,330.55) * (1 - .284) = $121.33 for the minimum debt payment, or

2) put the entire $1,500 * (1 - .284) = $1,074.00/mo toward debt payment, or

3) something in between - in other words, pay some extra on the loan and contribute something less than the maximum to the 401k.

With option #1, the loan is paid after 120 months and the 401k has some balance, depending on investment returns.

With option #2, the loan is paid after 10 months (with a payment of $693.03 in the last month). 401k contributions start in month 10 with $532.08, and continue at $1500/mo for months 11-120. After month 120 the 401k has some balance, depending on investment returns.

For an example option #3, if $500/mo extra is paid to the loan, the loan is paid after 18 months (with a payment of $51.05 in the last month). 401k contributions are $633.22/mo for months 1-17, $1428.70 in month 18, and $1500/mo for months 19-120. After month 120 the 401k has some balance, depending on investment returns.

In sum, no matter which of the 3 options one chooses, after 120 months the debt is paid and there is some balance in the 401k account. We could look at all possible debt payments between $121.33/mo and $1,074/mo to see which gives the highest 401k balance after 120 months.

Of course, there is one other assumption to make: the return in the 401k.

We then find three possibilities:

1) If the 401k return is

* less *than the debt interest, the best thing to do is put

*all the money toward the debt*2) If the 401k return is

*greater* than the debt interest, the best thing to do is

* make the minimum debt payment* and put the rest of the money to the 401k.

3) If the 401k return

*equals* the debt interest,

* all choices give the same result*.

Although it is possible to have 401k returns exceeding 8%, the odds are much lower than for a similar "pay debt vs. invest" analysis around mortgage pre-payments when mortgage rates are ~3.5%.

Personally, I'd take the guaranteed 8%.