When struggling with debt, one of the toughest financial decisions to make is whether to focus on paying it off now or saving for retirement. It can be especially challenging when working with a limited budget. Whichever you choose to prioritize should always depend on your unique financial situation and personal goals.
That being said, we are here to help you make the best decision for yourself.
Paying Off Debt vs. Saving For Retirement: What Should Come First?
When to Focus On Debt
From student loans to credit cards, you already know that the more debt on your plate, the less money you can devote to retirement savings. That’s why it’s essential to get the big picture of your debt—including the kinds of debt, your interest rates, and your repayment periods. For example, if you find that your debt obligations have interest rates higher than around 10%, then shifting your focus from saving to paying down debt might be best for you.
However, becoming debt-free is easier said than done. It can often feel like you’re stuck in the same place or not making a real impact on paying down your debt. This is especially true if you don’t pick the right repayment strategy.
If you’re someone who needs little “wins” along the way to keep motivated, we recommend the debt snowball method. The debt snowball is when you focus all your energy on paying your smallest debt first while making the minimum payments on any other debts. Then, once you’ve paid off that account, you move on to your next smallest debt.
But what if you find that you can’t afford your monthly debt payments? In this situation, enrolling in a debt relief program, also known as debt settlement, may be a good option for you. With a program such as the ACCS debt relief program, certified specialists will work to reduce the amount of debt you owe and lower your monthly payments to a more affordable amount. This would allow you to be debt free faster and at a lower cost than if you eliminated your debts through a typical repayment strategy.
When to Focus On Retirement
Similar to the decision to focus on debt, the decision to prioritize retirement savings also begins with an evaluation of not only your financial obligations and goals, but also any retirement benefits you have at your disposal and how near to retirement you are.
For instance, many employers offer a 401(k) matching program, which will match up to a certain amount that you put into retirement. Suppose your employer contributes $1 for every $1 that you put away up to 6% of your salary. In that case, that’s a 100% return on your retirement investment! By not contributing to your retirement amount, you’re essentially giving away free money.
The rule of thumb here is that if your math shows that you’ll earn around 7% on average per year on your retirement savings, then it might be worth putting as much as you can towards retirement and focusing on making minimum payments towards your debt.
To Save Or Not to Save…
…that is the question we’ve (hopefully) answered today! While the decision to save for retirement or pay off debt is a deeply personal one, it can be made easier by considering what we’ve discussed above.
If you need additional support in deciding whether to tackle debt or save for retirement, reach out to our debt specialists for a custom debt relief plan! We understand that everyone’s financial situation is unique, so your path to debt freedom should be just as personal. Our certified debt specialists take the time to listen, work with you, and create a debt relief plan that is right for you. Request yours here!