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Pay Off Debt vs. Saving

March 03, 2020

We have a walker! My 13-month-old daughter, Emmy, decided she was ready to move from four legs to two by walking this past week. She’s still doing the Frankenstein, of course, walking with her hands out front, but every day Emmy is getting more confident being upright. It’s absolutely amazing to watch. Someday she’ll be running off to college and I’ll be wishing she would go back to crawling.

 

Speaking of college, Americans are currently drowning in student loan debt, which is estimated to be at over $1 trillion. I get this question all of the time. Should I continue to pay off debt, whether it be student loan or consumer debt, such as credit cards, or start saving more?

The answer is – Do Both

I know what you’re going to say. There’s only so much income coming in and with all of my expenses how can I possibly do both?!

I get it. So, here’s the plan.

 

  1. Emergency Fund. The first thing to do is build yourself a small emergency fund. It doesn’t have to be 3-6 months’ worth of expenses we would normally recommend. Start with $1,000.

 

  1. Employer Match. If you are able to contribute to a 401k plan at your employer and they provide a matching component, then make sure you are contributing up to the match. That is free money that you need to take advantage of. Even if you are paying off debt, contributing to your retirement fund enough to receive the match is crucial.

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  1. Pay off Debt. In my opinion, any debt (excluding your mortgage) with an interest rate of 5% or higher (as of today) needs to be addressed. This debt needs to become your focus before you save for other goals. Using the snowball method, start knocking off each loan one by one. You’ll be amazed how quickly you gain confidence by eliminating your debt and becoming financially free.

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Focusing on debt elimination for a year or two will put you in the best possible financial situation to build for the future. If you hit a hiccup along the road, adjust, then continue to move forward. Having a plan that you can stick with is the best thing for you.

If you have a specific question or you’d like clarity on a particular issue, feel free to reach out. I’d be happy to help. 

Robert.A.Gariano@ceterafs.com

 

Fun Fact: Every second, we welcome four new babies into our overall population. Do a little math and you'll find out that means there are approximately 250 births each minute, 15,000 each hour, and 360,000 each day. In a full year, there are around 131.4 million babies born on Earth.

 

Disclaimer: This is meant to be general information and is in no way a recommendation for any investment product.