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Save For Retirement or Pay Off Debt?

Save for Retirement or Pay Off Debt

Many people are aware of the necessity to save monthly toward retirement. Quite often the
company you work for may contribute toward your pension, as do you. Although saving for
retirement is a very important job to do in South Africa, it can be challenging as well as
cause confusion when you find yourself in debt.

Why save for retirement when it feels so far away?

Saving for retirement is undoubtedly a vital job an individual must undertake as soon as
possible. For the first few years of working you may feel that retirement is too far away to
even concern you. However, just as taking out debt may cost you interest, saving money can
earn you interest. Many people neglect to understand the huge benefit of compound
interest, and this is the reason you should start saving for retirement as early as possible.
Here is an example – Thabo, 26, pays R500 a month toward his retirement fund which earns
9% compound interest. Lillian, 40, has started to pay R750 a month toward her retirement
fund which earns 9% compound interest. Assuming they both retire at age 65, Thabo’s
retirement capital would be R1 730 000 and Lillian’s R750 000. As can be seen, even though
Lilian had a higher monthly payment – Thabo’s retirement sum was much larger and more
sufficient due to starting to save early on. –What retirement investment should you choose

Importance of paying off debt

Not making your debt payments in a timely manner could result in, amongst others,

 A low credit score;
 Being blacklisted;
 Having your assets repossessed;

The above will cause you to be identified as a high risk individual and you may be unable to
obtain credit in future. It is therefore imperative that you pay off your debt according to the
agreement(s). If you find that you are unable to make the timely required payments due to
high expenses, it might be best for you to contact a debt counsellor who can help you to
reduce your debt payments and save you money.

Which is more important?

The truth is – saving money and paying off debt are both incredibly important. In the case
where you are struggling to meet your debt repayments do not be so quick to write off
saving money. It is important to analyse your entire budget in order to understand what all
of your expenses are, as it may make more sense to cut down on other expenses and
continue to save.

No two people are the same and therefore there cannot be one right answer for all. If you
are struggling to make your debt repayments and find yourself unable to save it would be
best to speak to a debt counsellor. A debt counsellor will analyse your situation and assist in
restructuring your debt repayments to a more convenient payment plan which meets your
specific needs.  – How does debt counselling work 

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