By Barb Miller, Bankruptcy Specialist at LSS Financial Counseling

Wow … what a loaded question! We always hear how crucial it is to get rid of toxic debt, especially credit cards with double digit interest rates. Therefore, people generally assume that paying off debt rather than investing for retirement is the correct answer. In my opinion, this is not really an either/or proposition. The best approach?  Do both!

Where you need to be:

Before getting into why it is important to both save for retirement and pay down debt, we have to start from a common point. To be able to move forward financially, it is essential that you are 1) using a budget to control your spending, and 2) have extra income for both debt repayment and your future retirement.

If you are spending more than you earn each month (or have no idea how much you spend), it is time to deal with the basics. This means learning to live within your means. The brutal truth is if you don’t control your spending, you will likely continue to abuse credit, and never have money tucked away for emergencies or retirement.

Saving for retirement:

One of my favorite financial gurus is Liz Weston, a regular blogger for the personal finance section of MSN’s Money website. She often tackles difficult topics, and makes them easy to understand.

Weston points out that retirement can be expensive and lengthy, especially since people are living longer these days. If your employer offers a retirement plan, and you don’t participate, you lose out in several ways.

o    A match from your employer: Most civilian employers will match a percentage of the contribution you make each month. This is free retirement money for you! Over time, even a small match will add up and make a difference. So, talk with your HR Department to find out how your company retirement plan works, and how much you must contribute to get an employer match.
o    A reduction of taxable income: Contributions to the Traditional TSP and 401k plans are withheld on a pre-tax basis. This means you pay less in income taxes overall because your taxable gross income will be less. If you feel you can’t squeeze out another dollar from your paycheck, talk with your finance department to see what difference a small contribution to your retirement plan (2% - 4%) will make on your take home pay.
o    There is always hope: Don’t give up if you are now middle-aged and haven’t started a retirement fund, or you can’t afford to contribute $250 a month. There is no time like the present to begin retirement savings. Acting now can ensure you will have enough cash (or at least more cash) to live on when you retire. If you never get started, Westin points out the average Social Security check is around $1000 a month. Will you really be able to live on that?

Paying down debt:

o    The “debt snowball” method: Make a list of your debt balances and pay off the smallest debt first. You pay as much money on the smallest debt as you can but also make the minimum payments on the rest. When the first debt is paid, you use that payment plus the minimum to get rid of the next smallest debt. And so forth and so on. The idea is that the emotional boost from ticking off smaller debts will keep you motivated to pay off everything.
o   The “debt avalanche” method: This process is basically the same as the debt snowball method. But, rather than starting with your smallest debt, you tackle the debts in order of the highest interest rates. This method is superior in that you will pay less interest overall, but it may take longer to tick off each debt.
o   Consider credit counseling: If you are struggling with your debt, contact a certified financial counselor. Visit your installation’s Family Readiness Center or the nonprofit  NFCC (National Foundation for Credit Counseling) to find one!  The counselor will review your overall financial picture and identify realistic options to address your debts. If money is tight, your counselor will likely have suggestions for how to reduce spending to make your budget work.

Need help saving and reducing debt? Take the Military Saves Pledge today and then visit www.MilitarySaves.org for tips and information.

Tip of the Day

  • Written by Guest Blogger | March 14, 2014

    Shop around for auto and homeowners' insurance: Before renewing your existing policies, check out the rates of competing companies whose annual premiums could be several hundred dollars lower. 

Saver Stories View all »

Regular Savings is the Key to Success

Written by Super User | November 26, 2010

My name is Chris Strong. I joined the Air Force on 25 March, 1985. On that day, my financial life changed forever. I was introduced to saving bonds in Basic Training. Savings bonds were the big thing back then just like the Thrift Savings Plan is today. A Colonel gave us a briefing. I cannot remember his name but I can remember the 100 savings bonds he had posted to a piece of card board. He gave us a speech on the importance of saving money and how it can change your life. He inspired me to save.

Read more...

A Plan for Success

Written by Super User | April 26, 2012

I’m Staff Sergeant Robert Zuniga and I have been an active duty Air Force medic for eight years. I plan on staying in long enough so that I can retire at 20 years. I have always been interested in personal finance and would like to share how it IS possible for me and my stay-at-home wife and two kids to not only save and invest a ton of money but also have a lot of responsible fun as well on 'low' enlisted pay. You CAN do it too!

First off, we write down our goals and separate wants from needs.

Read more...

Money on the Side

Written by Super User | November 26, 2010

Camp Arifjan, Kuwait -- A colonel in the 1st Theater Sustainment Command has money on his mind.

Army Col. George Fields, the Chief of Intelligence, or G2, has been teaching a free "Managing Your Money" class here in his spare time. More than 400 students have attended his six week-long class to learn more about increasing their own finances.

"All I did was sit down and listen to a guy one day who showed me what he was doing" said the colonel as he explained how he became interested in what he calls, "becoming financially free."

Read more...