The importance of saving for retirement cannot be overstated. Ideally, everyone would have enough money to save some each month to maintain their lifestyle after retirement. However, in reality, life is not that simple. After paying for daily expenses, many people have limited funds left to either pay down debt or invest for the future. It can be challenging to decide which option is more important.
Four Tips for Paying Off Debt
There is no one-size-fits-all approach to choosing between paying down debt and saving for the future. The best course of action depends on personal circumstances. However, consider the following tips:
- Build an emergency fund: Before allocating disposable income to savings or debt repayment, make sure to establish an emergency fund equal to six months of salary. This fund will provide a safety net in case of job loss, illness, or other unforeseen circumstances.
- Pay off credit card debt: Eliminating credit card debt as soon as possible is advisable as interest rates can quickly escalate and damage your credit score. As of January 31, 2023, the average credit card interest rate was 23.48%.
- Consider tax implications: When paying off a mortgage or student loan, consider the impact of losing the mortgage interest deduction on federal taxes. If investing in low-risk options like municipal bonds earns more than the savings from eliminating mortgage payments, it may not make sense to expedite loan repayment.
- Maximize employer 401(k) match: If your company offers a 401(k) plan with matching incentives, allocate at least the minimum amount to take advantage of the match.
These are just some factors to consider when deciding between paying off debt and investing for the future. A financial advisor can provide personalized advice based on individual circumstances. Alpine Bank is available to assist.
We also offer savings accounts for for both personal and business use. Learn more today.
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