Is it Better to Pay Off Debt or Save For Retirement?

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When talking about long term finances the most repeated question is whether it is best to pay off your debt or save your money for retirement. In almost every situation, it is best to pay off your debt before you start saving for retirement. There are many reasons for this, but it is up to you to decide if they make since to you. So, take a look at the benefits of paying off your debt before you start saving for retirement, and you will likely see why it is the best financial option.

Higher Interest Rate Return

Most people cannot expect more than 6%-9% return on their retirement investments. However, these same people are paying anywhere from 12% to 25% in interest on their various debts. By paying off your debt, you will actually be getting a greater return on your money. You are choosing not to pay the large interest rate on your debt that you would otherwise be paying. You have to pay off that debt at some point, so why not pay it off now and benefit from it financially.

Less Risk

If you are one that does not like the risk of investment, then makes since to pay off your debt first. When you are paying off your debt, you are guaranteed the financial benefit of not paying the large interest rate on the money you put toward the debt. With retirement investments, you are almost never guaranteed a return on your money. So go ahead and take advantage of the guaranteed financial benefit of paying off your debt, and then worry about retirement investments.

Increases Amount You Can Invest

Once your debt is paid off, you will no longer have the monthly payment obligation that you once had. This means that you will have more money freed up every month to invest toward retirement and you can make up for lost time when you were paying off debt. If you pay off your debts quickly and invest as much as you can once your debt is gone, you can actually come out just as good during retirement if not better than if you had simply invested the money from the beginning.

Money Goes Farther

When you have no income coming in month after month during retirement you will be thankful that you no longer have the monthly debt payments. The money that you save for retirement will simply go farther if it is not being paid to creditors every month. When every dollar you have counts, then it only makes since that it stays in your pocket.

So when you are asking yourself whether you should pay off your debt or invest your income, the choice should be clear. Paying off your debt and then investing for retirement is the best financial choice. It is a guaranteed return on your money, it increases what you can invest and once you get to retirement, you money will go further. If you really want to put your money to work, this is the best option for you. So tighten up your belt and get that debt paid off. The sooner you do, the sooner you will be able to start investing for retirement and rest assured knowing that your financial future is set.


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