"Should I still open a retirement account and save money if I have credit card debt?"

by David Bach
www.finishrich.com

"Should I still open a retirement account and save money if I have credit card debt?"

This is a question I get all the time and my answer is:

Yes, you should absolutely open a retirement account and start saving even if you are in debt!

After more than two decades of experience teaching people about money, I have come to believe with all my heart that it's a big mistake to put off saving money until you are debt free. If you do, you may never get started saving and you'll miss out on the matching contribution many employers offer on 401(k) plans.

But if you're in credit card debt, you need a different plan. Here it is: whatever amount you decide to Pay Yourself First, split it in half. Put 50% in your retirement account and use 50% to pay off your debt. Once the debt is paid, you can revert to Paying Yourself First with the full 100%.

If you make $50,000 a year, Paying Yourself First 10% would mean setting aside $5,000 a year or $416 a month. But if you have credit card debt you'd split that in half, putting aside $208 a month and using the other $208 to pay off credit cards. This system allows you to feel like you're working for the future while erasing the mistakes of the past.

This is bound to motivate you and get you excited about the future. In my experience, money is as much an emotional issue as a numerical one. This approach helps you handle both at once.

I call this my "Bury the Past, Jump to the Future" system. Click here for a simple exercise to help you discover exactly how much money YOU should put toward your debt while still saving for your future!