Should you pay off debts or save for your retirement?

Whether you earn a lot or not, you have to make smart financial decisions. Though most people want to save for retirement, they struggle with debt repayment. You should not overlook both of these things since they are equally crucial. Though saving for the future is vital, letting debt accumulate can lead to serious problems. Since everyone is unique, you need to determine which of the two makes more sense depending on your situation. The following guide should help you make the right decision.

Start saving for retirement early enough. If you work under an employer that offers a retirement savings plan, you need to get serious about saving for your future. This helps you get free money that can help you save for retirement.  Settle the high-interest rates debts first. If you took a payday loan from, you should prioritize on paying it back. Such loans often come with high-interest rates that can accumulate first. Ensure you look for ways to pay high-interest debts. If you are struggling to pay debts, make use of methods such as the snowball technique for you to manage debt payment effectively. Focus on paying small debts first, then proceed with massive debts.

Establish an emergency savings account. Every month, set aside some funds that you can deposit into your savings accounts. It should be different from a retirement account. You can use the funds on your savings account to handle any emergencies that may come up. Ensure you have enough savings that can cover expenses for at least three months. This can come in handy if anything happens, such as losing a job or having a medical emergency. A savings account can prevent you from more borrowing during a crisis.

Deal with low rate debts after clearing high rate loans. For instance, you may have taken a student loan, which you are yet to repay. Consider throwing in more cash towards eliminating this loan so that you can focus on other things such as saving for retirement. If you have more loans, you should try to clear them one at a time. Doing this instead of paying them all at once can prevent you from going broke in the process.

Put your plan in writing. This can help you stay on track and achieve your money goals. You can come up with a spreadsheet that has specific objectives. Give yourself a target as to when you intend to pay off all your existing loans. Include the amount that you intend to save within a specific time frame. Be realistic as you make the plan and work hard towards achieving every goal you set. Having it in writing helps you remain focused on clearing your debts and saving. It also prevents you from the temptation of misusing your cash on things that you don’t necessarily need. Try to monitor where your cash goes every month so that you can cut back on unnecessary expenses.

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