Should I Wait Until I’m Out of Debt to Save for Retirement?
Being in debt can be tough enough without also worrying how it may affect your retirement years — or even keep you from retiring. With debt, one major issue you face is the interest. With retirement, time is always a consideration. By balancing these two things, you can create a plan that can help you now and in the future.
Find the Balance
How can you find that balance? Start by looking at your debts. Pay attention to what kind of debts they are and how high the interest rates are. According to the U.S. Department of Labor, consider excluding your mortgage and student loans and focus on credit cards, car loans, and other personal loans. If you’re buried under heavy interest, or the minimum payments take up too much of your income, it may be best to pay off at least part of the debt before you focus on saving for retirement.
- Employer matching. If your employer matches a certain percentage of your 401(k) contributions, consider contributing enough to get the full match. After all, why pass up free money?
- Time is on your side. The sooner you start saving for retirement, the more your money can grow.
You Can Save While in Debt
If you decide to save for retirement while paying off debts, the U.S. Department of Labor suggests:
- Do what you can to lower your interest rates, by refinancing or, in the case of credit cards, simply asking for a lower rate.
- Figure out how much money this frees up each month, and begin contributing that amount to your 401(k) or IRA.
- Do what you can to free up other small amounts of money, by either eating out less or cutting unnecessary monthly services, which you can use to beef up your savings, pay off the debt faster, or treat yourself for making great headway toward your long-term goals.
Saving for retirement isn’t easy especially if you’re in debt. But, if you consider these simple steps you can help ensure you’re on the right path to enjoy your retirement years.
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