The subject of paying off debt versus saving for retirement is a hot topic among those on the fence regarding financial planning. Many people get into trouble early in life by using credit cards to get them through school and beyond. Once they get out of college, they find themselves buried in debt with no way to climb out.
There are two very good reasons to save for retirement. First, your Social Security benefit will be less. Second, when you do retire, most likely your lifestyle will be much lower. So, should you pay off debt versus save for retirement? Here's what to look at.
What does it mean to "pay off debt" versus "save for retirement"? The first step is to get rid of the bills that you simply cannot pay. Then, figure out how much money you need to live on. That number is going to be hard to calculate, but there are some helpful online calculators available. Just plug in your income and expenses, and you'll get an idea of how much you'll have to work with.
You'll have a better idea about whether you need to pay down debt or save for retirement. But do you really have to pay all of it down? Some people choose to put everything on credit cards. They then use the cards all of the time, which leads to high balances and lots of interest charges. In addition, they never get any savings because those taxes don't go away.
A better plan is to pay down the debts with lower interest rates as quickly as possible. Then, you can invest the money in a retirement fund. If you wait until retirement age, you won't have very much money left, but you can start building it up now. Instead of paying minimum balances on credit cards every month, start paying off the highest interest rates first.
If you think that you have a future, that means that you probably have some extra income coming in. If not, then that's fine too. Just make sure that you pay off the highest interest rates first. You should also be able to save some money for retirement, so that you don't have to worry about how you'll get there.
So, what's the answer to the question, "should you pay off debt or save for retirement?" The answer is a little bit complicated. You want to pay off high-interest debt first. Then, you should save enough money each month to either build up a nest egg or to have some left over each week. If you don't have any of either set of funds coming in each month, then you should probably focus on getting rid of the debt.
By not paying off high interest debt, you will keep the money going. If you have a nest egg though, then you can really afford to take out long-term loans to invest and to save. In fact, it's a smart idea to do just that. Instead of paying off credit cards, take a long hard look at what you've got already paid in interest and then take the money and invest in the things that will help you reach your retirement years.
Now, should you pay off debt or save for retirement? Well, there are definitely advantages to doing both. If you take out long-term loans, you can really put yourself ahead of the game. If you start saving money for your retirement, then you will have money to take you through the good and the bad times. It's definitely better to take out a loan now to pay off debt later, but in most cases, it's not necessary.
If you pay off high-interest debt first, then you will not be tempted to take out more, especially if you're only paying the minimum. You can also save if you pay high interest rates because you'll only be paying a few dollars per month instead of multiple dollars. In other words, if you have debt that is costing you five dollars a month, and you're only paying thirty cents, then you really aren't saving anything. Paying less money per month will help you to stay debt free. You'll be able to use what money you have wisely.
Now, if you want to pay off debt and retire early, then the answer is yes. But if you're on a budget and want to live comfortably right now, then the answer is no. Start investing and saving right now so that you can easily put away money for your retirement and not worry about having to figure out how you're going to pay off your bills. Remember, you can always pay off debt later.
Posted Using LeoFinance Beta