Don't let debt delay saving for retirement

Learn to invest while paying off debt, says 'To Her Credit' columnist

To Her Credit 
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

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Credit cards mean different things to different people. For some people (none of us, of course), a new credit card means one thing: It's time to go shopping! For them, a new credit limit is like free money. For other people, credit cards mean only trouble. These people worry about credit card debt, security and other issues so often they may avoid credit cards altogether -- not an easy way to live these days. Smart women, however, know that credit cards are valuable tools. Like any tools, credit cards can be used for better or for worse. These credit-savvy women know how to use cards -- to their advantage. CPA Sally Herigstad's new column, "To Her Credit," will answer your questions and help you use credit more wisely. In future columns, she will talk about credit scores, conquering debt, and even about sharing a credit card account with your beloved. Send your questions about credit to and start taking control of your credit life now!

 Question for the expert
Dear To Her Credit,
I'm 47 years old, and I know I should be saving for retirement. I want to start investing in the stock market. I also have credit card debt that I've been trying to pay off for years. Should I start putting money into savings even though I have all this debt, figuring that if I wait until I'm out of debt to start saving, that day will never come?
-- Aretha

Answer from the expert

Dear Aretha,
If you're excited right now about saving and investing, I'd encourage you to get started! If you wait, you may get bogged down again in trying to pay off your debts and never be able to start your portfolio. You can't wait until every single debt is paid off to start investing or before you know it, you could be 67 years old with nothing to retire on but Social Security.

Learn investing while debt dwindles
The catch is, until you get your debts paid off, you're going to have to limit the amount you put into investments to a very small proportion of your available cash. Open a discount brokerage account -- think of it as a practice account -- and make a few trades. With a small account, if you make some mistakes, that's OK. Read about investing theory. Always know why you are buying or selling -- and not just because you heard a hot tip in the news or at work. By the time you get your debts paid off and can start investing significant amounts of money, you'll be able to invest with confidence.

In the meantime, focus most of your financial resources on getting out of debt. This is crucial. If you try to make money in the stock market, but you don't pay down your debt, the high interest on your cards will most likely eat up all your investment gains and then some. A consistent return of 10 percent in stocks is very respectable, but that's not going to help you much if you're paying credit card interest of 20 percent or more at the same time. Always pay off high-interest debt before you start putting the bulk of your available money into investments.

Paying off those cards can be tough, as you know. Remember that other women have done it, though, and you can, too! You have a powerful incentive now that you know that those debts are the only thing between you and making your successful investment portfolio grow.

Start with a plan
To pay off your debts most efficiently, and to help keep yourself on track, make a written plan. Begin by creating a list of your debts, including the interest rate on each one. If you're like most of us, your interest rates vary wildly from one card to the next. Sometimes the rates have changed, and we haven't even noticed! Plan to pay off the cards with the highest interest rates first. After you pay off one card, concentrate as much money as you can on the card with the next highest rate. You may even be able to transfer a balance from a high-interest card to one with a lower rate. Be careful; high transfer fees can sometimes outweigh the benefit from lower rates.

One exception to the rule of paying off your debts first is any time you can get a guaranteed, instant return of 50 percent or even 100 percent on your money. The only place I know of where you can do that is with your employer's 401(k) or similar plan if your employer matches all or part of your contribution. If you haven't signed up to take maximum advantage of employer matching funds, do it immediately. Never pass up a deal like that!

Don't be discouraged if it takes you a while to pay off your debts. Paying off your high-interest debt is investing in your financial freedom -- with a very high rate of return.

Sally Herigstad  is a writer and finance consultant for MSN Money, a personal finance software product. She is a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her website is http://helpicantpaymy Sally lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant

To Her Credit answers a question about a debt or credit issue from a reader each week.
Send your question to Sally.

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Updated: 01-22-2018