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Pay off Debt or Save for Retirement: Which Comes First?
Pay off debt or save? This is the conundrum most Americans find themselves in.
Here’s what the numbers say:
The average American has about $38,000 in personal debt and this figure seems to be climbing year after year. 15 percent of Americans have no retirement savings at all and about 30 percent have saved up less than $20,000.
How did we get here? We can blame the economy but the hard truth is most people aren’t good financial planners.
Either way, if you’re already in debt and you need to save for retirement, what should you prioritize? Continue reading for deeper insight.
The Consequences of Not Saving for Retirement
When you hit about 62 years old, you’ll hang up your spurs. At this time, you’ll rely on your retirement savings to sustain your quality of life.
Without adequate savings for retirement, you will likely need to work well beyond the average retirement age. As you approach your sunset years, the last thing you want is to burden your health.
In some instances, especially if you work for the government, you may have no choice to keep working. You’ll have to retire once you reach the set retirement age. How will you survive if you don’t have a healthy retirement fund? Considering that health deteriorates as you age, you might struggle to afford the best healthcare. With these in mind, you can see why you need to prioritize saving for your retirement days.
The Consequences of Not Paying Off Debt
For most people, debt is a part of life – and there’s no shame in that. You need a loan to build credit. You need a loan to buy a big-ticket item like a car or a house. Even most business owners take out a personal loan to raise startup capital.
However, racking up debt can be dangerous to your financial wellness. And the longer you stay in debt, the longer you’ll take to achieve financial freedom.
If you fail to pay off debt and let your loans go into default, your credit score will take a fall. You could even be forced to take drastic measures such as filing for bankruptcy. If some of your loans were secured, the items you had put down as collateral could be repossessed and sold off.
Clearly, it’s in the best interest of your finances to pay off debt early.
So, Pay Off Debt or Save?
Both paying off debt and saving for retirement are equally important decisions.
Ideally, you can and should do both at the same time. With a bit of financial planning and the will to go the extra mile, you can pull it off. Start by creating a debt repayment strategy. For instance, you could consolidate your loans at a lower rate. Check out these debt consolidation reviews to learn more about how this method works.
After getting on a plan to pay off your debt, strategize on how to boost your income. You could take on a part-time job or start a small business. Use the extra income to save for retirement.
You Can Pay Off Debt and Save for Retirement
Pay off debt or save? You don’t have to make a pick. You can do both!
We’ve fleshed out tips you can use to pay off debt while saving for retirement. Put them to use.
Good luck and stay tuned to our blog for more personal finance advice.