Saving for the Future While Paying Off Debt

So here’s the scenario: you’ve landed a new job and are now making a decent salary. Conventional wisdom says it’s time to start saving for the future, and that is correct. This includes goals such as your first house, a new car, and even retirement.

But in addition to these savings goals comes mandatory obligations such as paying off your student loan debt and even lingering credit card balances. How is it possible to accomplish both needs at the same time, eliminating debt while saving for the future?

Here are some things to think about:

  1. If you happen to have a mortgage or student loan, the interest rate is typically lower than on other forms of debt. In addition, the interest paid on each loan is generally tax-deductible. So in many instances it may make sense to pay these loans off over time as scheduled instead of making extra payments to pay them off early.
  2. If you have credit card debt, make sure you pay that off first. This type of debt is not tax-deductible and only penalizes you the longer you hold onto the balances.
  3. One of the best ways to plan for the future is to contribute to your workplace retirement plan. At the very least, contribute up to the employer match if one is offered. Don’t leave money on the table.
  4. Don’t forget the value of starting your investing early. Interest compounds over time, so if you start earlier, the results will be dramatically better than if you wait. Even five years of waiting will significantly lower your future retirement earnings. So start now!

These are just a few ideas to help you balance debt repayment and savings. Remember, paying off debt may not be the same as stashing away cash, but it has the same net effect on your balance sheet. Interest from unnecessary debt will cancel out any positive interest in your investments, so attacking both at the same time will help you ultimately achieve your goals quicker and more efficiently.


About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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