When it comes to saving for retirement, the sooner you get started, the better. Every year, you need to save each year comfortable retirement amount increases. And with the economy, which shows no signs of improvement, planning for your future is more important than ever.
[Photo: 12 money mistakes nearly everyone makes]
But just as important as it should start saving for retirement early, you may be better at first to your consumer debt. In some cases, the amount of debt you have not only affects your budget today, but it can seriously limit your options in the future. So if you're contemplating the repayment of your debt or save for your retirement, here are three reasons for this pay down your debt first may be the best option.
The interest rate on your debt higher than investment returns
If you find some secret, do not risk portfolio with the return of 10% or more, now you have a debt is most definitely costing you more interesting than you could earn, saving for retirement. The most diversified stock portfolios are unlikely to return more than 10 per cent, and that not even considering the risk that is always present. And high rate savings accounts and CDs currently offer a very low interest rates. Interest rates on savings accounts and CDs continue to decline at an alarming rate. In its current form, you can do better right around 1 per cent for savings accounts and 2.5% over the long term. Instead of taking $ 10000 and earn $ 100 a year for pre-tax, take the money and debt high percentage.
Paying down debt will increase your credit score
Paying down your debt, you eventually will improve your credit score. And higher credit score you can save a lot of money down the road, especially if you plan to buy or refinance a home. Paying down debt, reducing your debt credit ratio, which is a key factor when calculating your score FICO. While there are many factors that determine your credit score, one of the largest fair, how much debt is already available. Increase your credit score now opens the door for future loans, as well as the capacity to reduce current interest rates on outstanding amounts. And good credit score can even lower your car insurance premiums.
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Your employer doesn't offer matching 401(k)
Some employers will match the contributions of staff in their 401(k) retirement accounts. If you are one of the lucky ones who have it at work to pay off all your debt before saving for retirement can be a great idea. Why? Because you would pass up some free money for your retirement accounts. But if you are an employer offers a matching contribution, then scale likely to board your debt repayment. It's true that 401 (k) has a number of tax advantages (taxes are deferred until retirement), but usually this benefit does not compensate for the decline in the interest of consumer debt.
It's a great feeling when you see your debt, descending through the month after month. Dave Ramsey has built his career from his debt snowball you erase your debt from smallest to largest, just to get them off your list motivation. So take your money every month and apply it to your high interest debt, and you'll see that it's not just a smart move, but also meet.
DR-founder of the popular personal finance blog, Dough roller and credit cards review site, IQ offers credit card.
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