#AskFarnoosh: Retirement or Credit Cards?
Jessica asks on Facebook:
My husband and I just paid off one of our cars and we have that extra $500 to use towards something else. He wants to use it towards his 401(k), which I admit we have skimped on these past years, but I want to use it to pay off our credit card debt. It’s near $10,000. I feel like once that is paid off we can invest in the 401K whole-heartedly. What do you think we should do?
Such a great feeling to pay off that car loan. Your question is not an uncommon one, as many people wonder whether it’s best to save or pay off debt. My advice? Try not to think of this as an either/or situation. I agree with you that you should address that $10,000 in credit card debt sooner rather than later. But I also agree with your husband and think you shouldn’t sacrifice your retirement savings Too often the 401(k) gets ignored for far too long.
Is there a way for you to address both? Yes, that $500 per month can go a long way in destroying that credit card debt. You’ll be debt free in less than 2 years at that pace. But could you go halfsies and contribute, say $250 towards the credit cards and $250 towards retirement? Then with any windfalls of cash – such as a raise – commit to using that extra money to accelerate the debt pay-off. And in the meantime, examine your spending. Are there any expenses you can eliminate – or at least trim – in order to shore up some additional savings towards the 401(k)? In my experience, there’s always something that you know you can do without…it may not be easy to give up at first…but if you seriously long for a retirement that’s stress-free and financially comfortable, you may be willing to make the trade-off.