Paying Down Debt VS Saving For Retirement
While it is encouraged to start saving for retirement at a very young age, many people have trouble figuring out if you should prioritize saving for retirement or paying off debt.
Everyone has a different financial circumstance and for some, it may seem that debt is slowing their progress on other financial matters.
Some circumstances require them to focus on one vs the other and for some, it may still be feasible to both save for retirement and paying down debt.
When to prioritize debt first?
Many are weighed down by their student loans, mortgage payments, or their credit card payments.
If your total debt amount is more than your income, it would be more financially rewarding to prioritize your debt first.
You should always deal with the most threatening obstacles first, and it may also free your mind to concentrate on other things.
Getting rid of debt first can decrease your expenses each month further allowing you to maximize your income toward your retirement later.
If you have high-interest debt and your only contributing your minimum monthly payments further extending your loan, you could have saved thousands of dollars in interest that could have been going towards your retirement.
Consider thinking of your retirement as you work to pay off your debt.
When to prioritize saving for retirement?
If your debt is manageable for you, you should consider setting aside money for your retirement fund while still making those minimum monthly payments.
According to debt.org, “A lower amount of debt can boost your credit card score. If you’re planning on buying a home or car, this could make you eligible for better interest rates when you take out a loan.”
Not all debt should be considered bad as it can help you improve your credit score.
Making the minimum payments for low-interest credit card payments, for example, will help you to maintain a good credit score so that you are eligible in case you do need another loan.
If your employer can match your contribution in your 401k or a similar plan, it would be beneficial to use that free money. You’ll be doubling your money if you match your employer’s offer.
A retirement plan should be seen as part of your monthly expenses and should be treated as such.
Even while you focus on your financial necessities each month like your phone and car bill, your retirement should be apart of your financial necessity that you have each month.
For example, setting a retirement auto-payment plan will ensure that you never miss out on saving just as you would in making sure your bills are paid.
If your near retirement or older, your retirement should be a financial priority.
Consider opening a traditional IRA or Roth IRA to set up recurring transfers from your bank account.
While everyone has different financial situations, the goal for everyone is to keep a balance of paying off debt while still saving for retirement.