Paying off debt as fast as you can may seem like the best way to get ahead. But that game plan could leave your finances at a permanent disadvantage down the road.
Saving for later and paying off the past doesn't have to be an either/or proposition. Doing both just takes some planning.
So how can you do it?
- Make sure you're contributing enough to your 401(k) or other retirement plan you have through work to get the employer match.
- Try to pay off nondeductible debt (like credit cards) as fast as you can while still contributing to your retirement savings plans to get the match.
- Consider paying your deductible debt (such as student loans or a mortgage) as scheduled ‒ based on the length of the loan.
Why not put all your "extra" money toward paying off debt? Though it's a personal decision, starting early with investing could benefit you in the long run. Consider this: Investing the same amount each month, you could end up with over $300,000 more if you start investing at age 30 instead of 35.
Credit scores can range from 300 to 850, according to Fair Isaac Corporation (FICO®), the developer of today's most commonly used scoring system. Most people score in the 600s and 700s, and scores break down along these lines:
The Cost of Waiting to Save
Source: Edward Jones. Assumes investing $550 per month and a 7% average hypothetical annual return. This example doesn't include taxes, fees and commissions, which would reduce the return. Figures rounded to the nearest $5,000. This example is for illustrative purposes only and does not reflect the performance of a specific investment.
This bar graph shows if you invest the same amount each month (example shown assumes investing $550 per month with a 7% average hypothetical annual return), you could end up with over $300,000 more if you start investing at age 30 instead of age 35. If you start at age 30, you'll have $990,000 at age 65; if you start at age 35, you'll have $670,000; if you start at age 40, you'll have $445,000; if you start at age 45, you'll only have $285,000 at age 65.
However you decide to tackle your finances, it makes sense to learn more about how investing can get you to where you want to be.