There are some fairly basic questions to ask your self to determine if you should put more money towards your retirement or pay off debt. In true wealthy and wise woman fashion, I believe everyone’s situation is different and the standard rules won’t work for everyone.

So this isn’t a hard and fast plan for what to do, instead questions to help you figure out what’s your best option

Focus on Retirement If: You have debt with good terms & have a debt repayment plan in progress.

Here are the questions to ask yourself:

Are you contributing at least the company match?

– if not, then regardless of the debt, you need to contribute at least this amount. Companies lower your salary to account for the company match. So not taking advantage of it, is leaving your hard-earned money on the table.

Are the terms of your debt favorable?

– If your debt has a low fixed rate, where each payment is predominately going towards the principal then you aren’t being burdened by paying excessive interest that would thwart your investment gains. You can set your debt repayment plan in motion while you work to build your retirement savings.

Can you afford to make additional payments to retirement and still follow your debt repayment plan?

– If you can make additional payments beyond the minimum contribution for match and still follow your debt repayment plan, then go ahead and focus on funding your retirement account.

Are you comfortable with it taking longer to get debt free?

– if you focus on retirement over paying off debt, then your debt repayment will take longer. If you are comfortable

Focus on Debt If: You have high-interest debt that can be paid off quickly (less than 2 years)

Here are the questions to ask yourself:

If you made only the minimum 401k contributions, would you be out of debt in 2 years or less?

– if going gangbusters on your debt will have you debt-free in 2 years or less, then it’s worth it to hold off on maxing out your 401k until you’re debt-free (but you still need to contribute at least the minimum amount for company match). If it’s going to take you longer, then you can’t afford to miss out on years of retirement savings while you work to get out of debt.

Are you tired of being in debt and just want it gone?

– Sometimes folks are just tired of having the debt monkey on their shoulders and just want it gone regardless of what it takes. Student loans and credit card debts that are decades old and mortgages are the usual suspects. If you’re tired of the debt, then go ahead and focus on getting it out the way.

Are you in high-interest debt?

– If you have high double-digit debt, you know the kind where you are paying more in interest than you are in the principle, then you need to make your debt a priority. At least until you can refinance the debt to better terms.

It doesn’t matter what you pick just make a move

Deciding how to divide your income among your goals can be very difficult.

We can feel like we’re making a mistake, and no one wants to do that. But in the realm of money, it’s more than just the math …everything is personal. How you feel, your motivations, comfort level, etc., all impact how you prioritize your goals.

It’s great to ask the right questions to get you thinking, but at the end of the day, the most important thing is that you do something.

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