Saving for retirement or paying off debts: Which comes first?

"Should you save for retirement or pay off your credit card debt?"

According to the conventional financial wisdom, you should prioritize the retirement savings as early as you can.

The sooner you start saving for the retirement, the more time your savings will get to grow.

In addition to this, you need to contribute enough money to your 401(k) account to get the full employer match.

We all agree with the conventional concept, but we shouldn't forget about our financial obligations. We have to pay off our debts to establish financial peace in our life.

As per the financial experts, before entering into the retirement days, people should get rid of all their debts.

Because, some consumer debts like credit card debts, payday loan debt, and personal loans that are not backed by any collateral are harmful. They come with higher interest rate. If you don't pay off, you will lose more money with time paying interest. You should pay off these debts as early as possible.

Moreover, your creditors can send your account in the collection which can affect your credit health as well.

Paying off debts is equally important as saving for the retirement. On the other hand, you can't underestimate the importance of an emergency fund as well.

So, you need set the financial goals wisely.

Here is a stepwise guideline that you can follow to achieve all the important financial milestones in your life including saving for retirement and paying off debts.

1 Pay off all your painful debts

Click to choose a way to pay off your debts

List all your debts and try to pay them off as soon as possible. It is the first step to learn how to save each penny to make some extra payments toward other debts. Remember, you are saving money by paying off your debts.

I will suggest you follow debt snowball method to pay off your debts. List all your credit card debts from lowest to highest amount.

Target the lowest balance and make some extra payments toward it while making minimum payments to the rest.

Keep making payments until the debt is paid off. After that, target the second biggest amount. Follow this method until all the debts are paid off.

This is one of the simplest debt repayment ways a layman can understand and follow to get out of debt. Also, this method can help you to stay motivated and feel confident.

2 Nurture an emergency fund

Before securing your retirement days, you have to build an emergency fund. Why should you feed an emergency fund?

An unexpected emergency can consume the whole savings or can force you to take out a loan to meet the purpose. The emergency fund will help you to combat any unforeseen emergency.

Remember, you shouldn't carry debt in your retirement; it will let you live a financially miserable life in your golden days.

Thus, it is important to keep 3-6 months' worth of emergency savings.

You can also determine the amount you need to save in an emergency fund by calculating how much you require to live on for at least 3-6 months.

Thus, you will be able to protect yourself against the unforeseen surprises.

By doing so, you will never be in scary debt in your life- no matter what happens in your life.

3 Pay off your mortgage

Can you imagine your life with no mortgage payments? Home loan is one of the biggest debt in your way that you should pay off before entering into the retirement life.

Try not to carry the mortgage payments in your retirement days. Because, during retirement, you will have limited income to live your life.

So, try to mitigate all your financial obligations before you retire.

Pay some extra toward the mortgage. By doing so, the mortgage payment will not scare you for a long time.

When to start saving for the retirement

It is always good to start saving for retirement as soon as you can as I have mentioned earlier. But, it will be great if you kill all your financial obligations first including, unsecured debt, secured debts, and other personal loans.

You can either pay off all your debt obligations and confirm that you will not accumulate further debts in the future or work on your savings and debt payoff goal simultaneously.

6 Key steps to follow to secure the retirement

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Step 1: Make enough contributions to the 401(K) to get the full employer match.

Step 2: Try to invest at least 15% of your monthly income in the tax-advantaged retirement account.

Step 3: Keep an emergency fund to avoid unexpected debts.

Step 4: Start paying off your debts as soon as you can.

Step 5: Save money for kid's education.

Step 6: Save a $1000 baby savings for small medical issues.

Lastly, you have to understand that building financial security is important. It will help you to build wealth.

Once you are free from your painful debts, you can concentrate on saving for retirement instead of making costly debt payments. Finally, remember, your income is the ultimate tool to build a retirement nest egg.

So, try to be free from all costly financial obligations and use your income as much as possible to build a fat retirement fund to enjoy your golden age.