Tom: Financial experts say we should save more and also pay down debt. Greg Lesko of Lesko Financial has advice for how to tackle both.
Greg: Thanks, Tom. Each person’s situation is unique but ideally you should be working to pay your debts and save especially for retirement at the same time. For those who say they can’t afford both, there are solutions. Step one might be to begin an emergency fund, so you won’t run up more debt when the unexpected happens. Most advisors recommend three to six months of living expenses in that fund. But you could start with a smaller amount, say a thousand dollars. Then turn your attention to paying down debts.
Tom: What debts should you pay first?
Greg: High interest credit cards, because they’ll keep accumulating interest. The idea is to squeeze money from your budget to pay those off, then put the same amount into savings when those debts are gone. Once you have your three-to-six months of expenses in your emergency fund, the next step is to put as much as you can towards retirement.
Tom: What about student loans, car loans and your mortgage?
Greg: I realize some people like to have those loans and their mortgage completely paid off. It does give a measure of satisfaction and you end up paying less interest. But assuming you stay current on all your payments, it could make more sense to put that extra money into retirement because the sooner you start, the more your money can grow through compounding and making an early start is critical.