When it comes to debt, a common question is: Which makes more sense – paying down debt or saving for retirement? In other words, why bother to save up and earn interest, when you’re already paying high interest charges on loans? Although there are different viewpoints, most financial professionals suggest that it’s better to do both at once. In other words, don’t ignore saving for retirement.
One big reason for this – time counts. It’s the key ingredient in growing a retirement account. If you’re in a job with good employee benefits, you may even receive some level of “matching” from your employer into a 401(k) account. Traditionally, a percentage of dollars from your paycheck will be moved into the 401(k) account and the employer may match the amount, up to certain annual limits. A company match has the power to greatly increase the value of a 401(k) account. Even if you don’t have matching, the money you put into a retirement account isn’t taxed until you withdraw it, so you can benefit from compounding growth, and boost your savings over time.
When paying off loans and saving for retirement, consider taking the following steps: 

Reduce the interest rate on your debt. If you’re carrying credit card debt, you may very well be paying the highest interest that’s legally allowable – try to lower the rate by going to an accredited, non-profit debt reduction program. Counsellors may be able to help you get a lower rate, usually by consolidating debts into one loan. Or, reach out to the credit card company and discuss your options. They may be willing to lower your rate.

Budget and change your spending habits. All strategies for debt reduction involve spending less money, generally by limiting your non-essential purchases. Create a budget and stick to it. Add up what you shell out daily on coffee, lunches, and drinks after work, then multiply it by 52 weeks, and you’ll probably come up with a very large number. Dining out is another significant expense, and cutting back a little can make a difference. While staying in and eating peanut butter and jelly isn’t fun or sustainable, try seeking out enjoyable, positive and inexpensive activities such as inviting friends over for dinner.

Make extra payments to creditors whenever possible. Paying-in more will reduce debt faster, but equally important, you’ll be saving double on interest you would have paid. Find free online calculators that show you how much one extra payment will affect your debt, and it doesn’t have to be an entire extra payment—even a partial will help. You’ll discover that the savings are significant.

Think about saving for retirement and make a plan. It can be tough allocating money today that you’ll be relying upon a time long into the future. However, arrange for automatic paycheck deductions at work if you’re eligible, or invest in an IRA at your bank and feed it regularly throughout the year, even if just a few dollars each time. The act of thinking long-term is in itself a healthy financial exercise.

Watch your retirement savings account as it builds. During the first few years, your progress may not seem spectacular, but take a look in four or five years. By adding gradual increments and harnessing the power of interest in rolling the entire amount over, savings have a way of snowballing into a substantial sum. This can and will make a huge difference in the decades ahead. Of course with investing there is risk, since the investments will go up and down, so it’s important to assess your retirement savings strategy with an advisor.

With a realistic goal, you can savor the feeling of watching debt shrink. Meanwhile, by feeding your retirement account in regular increments, it will start gathering interest in your favor. When you’re debt-free, celebrate (without breaking the bank)! Then, take all the money you were funneling into debt reduction payments and use it to pump up your retirement savings even more. By balancing debt and savings, you’ll be taking steps to pave the way to a more secure future. And, if you’re not sure about strategies, see a financial representative who can help you to plan in a way that makes sense.



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