What’s More Important – Paying off Debt or Saving for Retirement?
After a financial rough patch, you’re back on your feet. Money’s still tight, but you have a little left over at the end of the month, and you want to be responsible with it. Instead of enjoying an expensive dinner out or buying a new phone, you’re going to use it for something important – paying off debt or saving for retirement. But which one?
They’re both important goals. The truth is that you should be working toward paying off your debt and saving for retirement, even if your finances are limited. However, if you can’t devote as much money as you’d like toward each goal, you have to decide where to skimp. It’s not an easy decision, but answering the following questions will help.
How much debt do you have? If you have a ton of debt, you’ll likely need to pay off at least some of it before doing anything else. Otherwise, the monthly payments you have to make will eat up all your income. On the other, if you don’t have much debt, making regular payments while you also work on building your retirement nest egg may be feasible.
What are your interest rates? The higher your interest rates, the more harmful your debt is. Pay off high-interest loans and credit cards as quickly as possible. If you can’t pay them off, look into refinancing your debt at a better rate.
How’s your credit score? Having a lot of debt can bring down your credit score. If this is causing problems for you – resulting in declined loans, higher interest rates and more expensive car insurance premiums – paying off some of that debt may need to be a priority.
How close are you to retirement? If you’re still in your twenties and just out of college, it might be smart to pay off your debt now and focus on saving for retirement later, especially if you can pay off your debt relatively quickly. The closer you get to retirement age, though, the more crucial your savings become.
What kind of retirement savings opportunities do you have? If your employer offers a 401(k) match, you want to take advantage of this. For example, if your employer agrees to match up to a set percentage of your annual salary, try to contribute that amount if at all possible.
Once you have a smart plan of action, don’t waste money on things like paying too much for car insurance. If you haven’t shopped for home or auto insurance in a while, request a quote from Dashers.