"Can you pay my bills? Can you pay my telephone bills?"Perhaps Destiny’s Child were also trying to figure out where to find extra cash to start saving for retirement. Just like us, mere mortals.
“The practical solution is to find money. We believe that there is almost always some money to be found … it may be R100 a month or R1 000. Once you know where it is, then you can think about the ‘debt or retirement’ question practically.”Financial adviser, Bray Creech, recently shared on the Citizen Times (a subsidiary of USA Today) that implicit in the ‘debt or retirement’ question, is that you are paying all of your minimum monthly loan payments (obviously). He advises that there is no one-size-fits-all answer, but emphasises some important considerations to make.
“…Make a list of all your debt. For each loan, jot down the following: how much you owe right now, your interest rate, and your minimum monthly payment,” advises Creech.He advises you focus on those loans with an interest rate of 10% or greater.
“Assuming you’ve made your minimum monthly loan payments, pay off the highest after-tax interest rate debt first. If that’s credit card debt at 17%, for example, then by paying that down you’re effectively getting a 17% return on your money. … In contrast, getting a 17% return on your money through investing is difficult, high-risk, and anything but guaranteed,” he adds.
“If, for example, your employer offers a 100% match on the first 3% of your contributions, then you should contribute 3% of your salary into your retirement plan. Why? You’re earning a 100% return on that portion of your retirement account contributions,” says Creech.
“That way, you don’t have the pain of writing a check or sending a payment each month.”This applies to paying off your high-interest credit card, as well as contributing to your retirement. He also says some people respond to the psychological benefit of seeing debt disappear more quickly and prefer to pay their loans with the lowest balances first.
“While you may pay more interest with that approach, if it helps you stick with a plan, then stick with it,” he concludes.