You choose: Save vs. Pay Down Debt

14 Dec

{The following article is from the USA Weekend Newspaper}

Which comes first: saving more money or paying down debt? There’s no “one size fits all” answer, but there are guidelines to help you decide:

They’re not mutually exclusive. While it’s sensible to pay down a credit card with a steep interest rate, try to set some money aside for saving as well. “If you wait until everything is paid off before you start saving, you lose a lot of years of compounding,” says financial planner Glen Clemans of Portland, Ore.

Leverage a 401(k). This is a slam dunk. Not only do you lower your taxable income (deposits are made before they’re considered salary,) your employer may offer a match. Try to max out contributions.

Slash consumer debt. Credit cards can be costly, particularly since the interest carries no tax advantages (home mortgage interest is tax-deductible.) “People should work towards zero consumer debt as soon as feasible – especially before retirement,” Clemans says.

Leave the mortgage. It’s nice to pay off your mortgage, but saving for retirement and trimming consumer debt carry bigger benefits. “Don’t worry about a house payment in retirement as long as you have the income to pay it,” Clemans says.

– Jeff Wuorio

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