Is it better to have a good credit score or more money to put into retirement?
Finance question: I am in severe credit card debt with a high interest mortgage. I am currently unable to put any money into retirement (age 32) because of this, plus, I believe my condo may be worth less than the current loan (Phoenix, AZ market). I have already contacted my lender who agreed to freeze my current 8.5% rate but they are unable to do anything else.
Question: For long term finances, is it better to keep making all these minimum payments and hope I can sell in 2 years with maybe a little profit, or should I walk away and put all that extra money in an IRA? I would be able to put about 0 a month into a retirement plan if I did this AND pay off my credit cards. Or should I save my credit score? Which is better in the long run?
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Tagged with: credit card debt • credit cards • credit score • extra money • finance question • high interest • interest mortgage • ira • minimum payments • phoenix az • retirement age • retirement plan
Filed under: Condos
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I think you should first tackle your debt. Your debt level is probably one of the reasons why you have to make such high monthly payments and why you have a relatively high mortgage rate. Say your mortgage is for $200,000 and runs for 30 years. With a rate of 8.5% you pay almost $1,540 per month, but with a rate of 6% you pay only $1,200 or $340 less per month. (You probably could have gotten 6%, if your debt situation was better.)
The problem with your credit card is most likely even worse. You are probably paying an interest rate of 18% or higher. If you have a balance of $10,000, this rate means that you pay $1,800 per year in interest charges or $150 per month.
As you can see, these two examples show that this possible debt scenario costs you almost $500 per month assuming that the example is not too far off from your actual situation. If you compare those $500 with the $300 you would like to put into a retirement account every month, it is quite obvious that it makes more financial sense to tackle your debt before anything else, especially your credit card debt.
Once your have eliminated your credit card debt you can think about other financial goals such as retirement and saving some emergency cash.
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Is there some other sacrifice that you can make? We are getting ready to move into a house with a higher monthly rent. We have decided to stop going out to dinner on Friday nights to be able to afford a nicer house. It is going to be worth it!
Retirement planning is SO important. We can no longer rely on the government to support us once we stop working. Put away whatever amount you are able. It will pay off one day.
Good luck!!!
Save your credit score. Pay all your bills on time and wait out this bad housing market before you decide to sell.
If you walk away, you won’t be able to buy for about another 10 years.