For many people, debt is the main factor preventing us from achieving our financial goals – without even including retirement savings. However, retirement cannot be left out if we are to be able to retire comfortably and securely when the time comes. 40 percent of retirees say that paying off debt is a current financial priority. Don’t be one of them. You can pay down debt while saving for retirement.
Paying down our debt before saving for retirement seems more ideal than paying down debt while saving for retirement. It comes down to feasibility. Of course, having enough money to do so is the definitive factor. While the amount of money a person has in the bank will change over time, needing retirement savings never does. Here’s the key: Paying down debt while you save for retirement allows you to benefit from the potential compound growth your retirement savings can earn.
Make an assessment
Identify what you owe and how much it’s costing you. Rank the debts from the ones having the highest interest rates to the lowest interest rates. Look for items that can be reduced to free up funds in your budget, i.e. hefty cable packages or high-interest retail store credit cards.
Track your expenses
Identify where your money is going. For maximum ease, use an app like Mint. There are several others, too, that will do this for you. Using an app or other online tool is recommended because it maximizes accuracy when dealing with your budget.
Start an emergency fund
Saving anything is better than saving nothing. Whatever the amount is, save it out of each paycheck so that it builds up over time. Have the discipline to use it only in an emergency or set it up in a way that provides limited access. An emergency fund is important because something unexpected can throw your budget off for months or even years.
Pay down high interest debt first
We know that the higher the interest rate, the more money we repay to resolve the debt. One option to consider is moving your debt to a balance transfer card that allows a lengthy zero percent period. Interest rates matter. If you can, try to avoid transfer fees by researching which balance transfer card will be the right one for you. Do this by knowing the fees, avoiding interest payments and ensuring multiple cards have different providers, because you can’t use two different cards that have the same issuer.
Keep your 401(k) in mind
If your employer offers a match, contribute at least what is necessary to obtain it. Take advantage of the free money. Age, income and other factors all influence how we pay down debt while saving for retirement. We must keep a continual eye on how we manage these dual-tasks so we can modify and adjust when and where needed. Side-hustles (i.e., Uber or Lyft) and budget cuts are always options. Stay mindful of retirement savings because time passes whether we are budgeting or not.