When it makes sense to pay down debt faster
Even if you carry debt with a relatively low interest rate — low enough that the math would suggest that you should focus on saving for retirement — there are a couple of instances where it might make more sense to pay off your debt instead.
- You want to finance a house or car soon. If you hope to get a car loan or mortgage in the near future, lowering your debt-to-income ratio could be the key to qualifying for a better interest rate — or even qualifying for a loan at all.
- Your debt is causing you serious stress or anxiety. Sure, the math matters. But how you feel about your debt matters too. Some people simply can't stand the emotional weight of debt. If that sounds like you, getting rid of your balances ASAP will likely be the right choice for you.
When it makes sense to save more money for retirement
Even if you carry debt with an interest rate above 7%, you might want to keep retirement savings high on your priority list if:
- You have a 401(k). If you have a 401(k) or any other kind of retirement plan in which your employer will match some percentage of your contribution, contribute enough to get the full match. This is like free money from your employer, so don't leave it on the table.
- You're getting close to retirement. If you're older, you probably want to focus on your nest egg and give it a little time to grow.3
When it makes sense to do both (yes, this is an option)
The issue of paying off debt versus saving for retirement doesn't have to be an either/or question. If you can afford to put a little more toward retirement while also making more than the minimum payment on your balances to pay down debt faster, go for it! You'll be in a better financial position in the long run if you can put more cash toward both goals at the same time.
To do this, you might need to create a budget or look at where you can cut back on costs to free up more cash. Consider cutting back on discretionary spending (like entertainment, meals out, and expensive vacations). Also, you might be able to find ways to earn more money (like picking up more hours at work, trying your hand at freelancing or consulting, or helping your neighbors out with odd jobs).
Feeling motivated? Make the most of your efforts by tackling your goals strategically. We can help you work smarter, not harder. Give us a call at 1-888-SYNOVUS (1-888-796-6887) and we'll connect you to a financial advisor.