Pay off debt or save for retirement? 5 steps to balance both

You’ve settled into your career and have a little extra money in your pocket. What do you do with it?

Knock out debt? Save for retirement?

The good news: It doesn’t have to be an either-or question. It’s all about finding a balance. Here’s how:

1. Focus on your cash flow.

Figure out how much you have coming in versus what's going out and adjust so you have money for retirement and paying off debt.

Document your household expenses and look for ways to free up money each month to put toward debt reduction and/or savings. Look at recent bills, plus bank and credit card statements, to give you the real facts.

Of course, more income helps. Lots of people have a side hustle for extra money. Maybe you can be a math tutor, make earrings for the local art fair, or join the ranks of Uber drivers. Search for "side hustle ideas" to get started.

2. Beef up your savings.

Keep long-term savings top-of-mind. Building liquidity while paying down debt is helpful.

Contributing to your retirement accounts while paying off debt can help. Even a small bump in your retirement plan deferral can make a big difference over time.

3. Make debt reduction a priority.

Start early and chip away. It never helps to wait until a serious crisis to prioritise and pay down debt. Instead:

  • Make a list of debts from the highest interest rate to lowest.
  • Pay off the highest-interest credit cards and loans first. Pay more than the monthly minimum on these.
  • Continue to make at least minimum payments on the rest.

Once you’ve paid a debt, consider putting that same monthly amount toward retirement savings. (And pat yourself on the back.)

4. Be cautious about credit.

If you carry a credit card balance: work toward paying off your credit cards.

If you're essentially debt-free: Continue to use credit within reason, of course. Why? Because not using it may damage your long-established credit score and make it harder to get financing when you really need it.

5. Talk to a financial advisor.

To plan for your future, you first need to know where you stand financially. Then, if you want assistance, contact a financial advisor for help with your personal finance strategy.