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A reader is torn between paying off her credit cards, saving for retirement, or doing a little of both.

2 minute read

Question: After years of working part-time (I was laid off in 2014), I got a good full-time job with benefits. During the bad years, I ran up $11,000 on a half-dozen credit cards. I’m looking forward to paying those down, but I also want to start saving for retirement.

My wife says we should probably split whatever extra money my new job will bring in, but since we’re both in our early 50s, I’m wondering if stashing more in an IRA is a better option. Any advice?

— Andrew in Rhode Island

Howard Dvorkin CPA answers…

Many times, my answers to reader questions is, “It depends.” Then I explain the nuances of that particular financial dilemma. Not so in your case, Andrew. The answer is simple. Pay off those credit cards.

Let me explain it like this: Saving for retirement without paying off your current debts is like trying to cure your cancer with chemotherapy while bleeding to death from a flesh wound. You need to solve the most pressing problem first, or you won’t survive long enough to get to the second.

As a CPA and financial counselor for more than two decades, I get asked all the time: “How do I save more for retirement?” When I ask if they have any credit card debt, they sometimes answer, “Sure, but I’m making the minimum payments.”

Here’s the thing: The interest on your credit cards far outstrips what you’ll earn in a retirement account. The average interest on those cards as of today is around 15 percent. Does your retirement accounts pay you 16 percent? If the answer is no, then pay off those credit cards first.

Of course, there’s a caveat: If you have a 401(k) at this new job, take advantage of it, especially if it offer a generous matching contribution. Until you pay down those credit cards, contribute only as much as the match.

If you really want to know where you stand, Andrew, call 1-800-810-0989 for a free debt analysis from one of our trained counselors. Then you can start your new job knowing exactly what you need to do.

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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.

Published by Debt.com, LLC