Both options are good and if money is not a problem, surely everyone will want to pay for one as much as the other. But of course, situations can be tough and most of the time the money left that can be put to our savings is barely enough for either option. Do you need to choose between paying off your credit card debt or funding your retirement? Before you come up with a decision, let’s take a close look at each one and find out which one works best for you.

Credit card debt vs 401K savings

First, let’s take into account your 401k fund. This guarantees you 50% return of your investment tax free until the time that you receive the money. What about your credit card debt? Federal Reserve reveals that 15% is the average interest rate on credit card accounts. That means your credit balance is increased by 15%, so paying it off is like getting the 15% from your money back. If you’re going to compare between 50% tax free against 15% taxed money, you might easily say you’ll prefer the latter. However, don’t forget that your retirement fund waits until that time when you’ve actual retired and is qualified to claim your money. Your credit card debt on the other hand, increases by 15% monthly and continues to do so as long as you leave it unpaid. Obviously, it is requisite that you should pay your credit card debt first, to avoid further increase on your balance. Once it is paid off, you need to ensure that you do not acquire any more balances in the future so that in turn, you can focus your attention and your money to your retirement fund.

What if you want to divide your extra money to simultaneously pay your credit card debt and your retirement fund? Considering the cost of interest charged to your credit account each month plus the additional tax, it would work to your best advantage if you can erase your credit card debt in the shortest time possible. Consequently, you can devote your extra money to invest on your retirement fund in full.

Hence, when given a choice, it is more sensible to pay off your credit card debt completely before starting to invest on your 401 k fund. One way to cut down your credit card debt is by transferring your balance to a credit card that offers a much lower APR than the one you currently have. This way, you can lessen your paying time and immediately begin contributing to your retirement. If it seems too hard for you to deal with your credit card debt, you can ask for assistance from a legitimate Credit Counseling Service.

Keep in mind that as soon as you’ve cleared your credit card debt, you should concentrate investing for your retirement. The important thing to remember is to always have a reality check on your lifestyle and to know how to manage your finances correctly. Having good financial habits is the key to making the most of your money.

About Melanie Mathis

Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of NHBS, Inc such as their continuous effort in giving out Free Credit Repair and Building Ebook. Connect with Melanie Mathis on Google+

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