One of the biggest financial obstacles people face is paying off their debts while saving for retirement. The average adult in America they have about $29,000 of debt, excluding mortgages. A quarter of Americans believe they will never be debt-free.
People must prioritize paying off their debts while also saving for retirement. This article will discuss the process of paying off debts while saving for retirement.
Which Option is Better?
No single rules apply to how people approach their finances when it comes to saving for retirement and paying off debts. However, there are a couple of rules that can help people manage their finances.
Paying Debt First
Before contributing to your retirement savings, you must have enough money to pay off as much debt as possible. If you have high-interest debts, such as credit cards and loans with rates of over 20%, you must prioritize paying them off as soon as possible.
It’s also important to consider how debt can affect people’s emotional well-being. If it’s a severe issue you’re dealing with, it might be a good idea to prioritize it even if it’s not the most financially prudent option.
Saving for Retirement
While it’s essential to pay off debts simultaneously, there are other times when it’s possible to save for retirement while still in debt. In these cases, you can use some of the money you’re currently spending on debt to retire.
401k Match
Some 75% of companies offer a 401k plan with an employer match. If your company provides this financial incentive, you will not pass it up. It can help you save for retirement and pay off debts simultaneously. If you’re still in debt, it’s important that you contribute at least up to your salary to the company’s match.
Low-interest Debt
One way to pay off debts while still having a good return on your money is by investing in the stock market. According to the S&P, the stock market has an annual return of 10%, higher than the average interest rate people pay on home loans, car loans, and mortgages.
Long-Term Debt
If you have a small debt that you can quickly eliminate, it might be better to get rid of it as soon as possible. However, it’s important to start contributing to their retirement savings for people who expect to pay off their debts for a long time. Having a steady stream of money in the stock market can help boost your earnings and ensure you’ll have the opportunity to retire with more money,