As the following video reveals, it would be better to use whatever disposable income you have to pay down that credit card debt.
The reason for this is simple. The interest charges you’re paying on that debt is far more than the interest you would earn by putting the money into a retirement account.
Do the math
While we don’t know how much interest you are paying we can guess it’s at least 15%. If you were to pay $500 a month on that $7560 credit card debt it will take you 17 months to pay it off and cost you $872.12 in interest.
If you were to put that $500 a month into a retirement account instead and earn 6% compounded monthly your balance at the end of 12 months would be approximately $6,170 and at the end of two years, it would be $12,717.
But $12,000 of that is money you deposited – so you earned just $717 over the two years.
And you would still owe most of that $7560 credit card debt.
As you can see your best investment would be to pay off that credit card debt and then after the 17 months start tucking that $500 a month into your retirement account.
If you’re fortunate your company offers a 401(k) plan and will match some of your contributions. When this is the case it’s important to make as big a monthly contribution as possible once you’ve paid off your credit card debt so that your employer will be matching to the max. This is basically free money. In addition, the money you put into a 401(k) is pretax meaning you’re not required to pay taxes on it until you reach retirement age and begin making withdrawals.
In the event your employer does not offer a 401(k) plan you need to start your own retirement plan in either a traditional or Roth IRA. When you deposit money in a traditional IRA it’s like a 401(k) in that the money is pretax. But again you will be required to pay taxes on the money when you begin withdrawing it. A Roth IRA is basically the opposite of a traditional IRA. The money you deposit is taxable but you will be taxed on it when you begin withdrawals.
A more aggressive way to pay off that credit card debt
If you need a more aggressive form of debt relief to get your credit card debt paid off quickly so you can start saving for retirement, visit ww6.wpengine.com to learn how to reduce your credit card debt through debt settlement. National Debt Relief provides just that – debt relief.
How this works
The way this works is that when you sign an agreement with National Debt Relief your debts will be consolidated as you will no longer be required to pay your creditors. What you will do is make one payment a month to National Debt Relief that will be deposited in a trust account that you manage. When enough money has accumulated in your account, National Debt Relief will contact you and ask that you release enough money to pay for a settlement. This process will continue until all of your debts have been settled. This typically takes from 24 to 48 months depending on the size of your debt.
Debt settlement does have a downside as it will negatively affect your credit score. However, it’s better than a debt consolidation loan, a balance transfer or even consumer credit counseling because none of these can do anything to reduce your debts. Regardless of which you choose, you’ll basically be moving your debt from one set of lenders to a new one and will still owe the same amount.