Erin Grabe

Sep 28 2015

Should You Save Money or Pay Off Debt?


Respect your elders. Don’t talk with your mouth full. Say please and thank you. All great things our parents taught us. But what about how to balance managing debt – specifically student loan debt–with saving money–for retirement, our own children’s college, or a rainy day fund? If you feel overwhelmed, you’re not alone.

Paying off debt, especially higher interest debt, is good. However, it’s important not to overlook the importance of saving for your future and taking full advantage of your employer’s 401(k) Plan. Most 401(k) plans offer a matching contribution. For example, if you contribute a certain percentage of your wages, say 6%, the employer agrees to match up to 50% of your contributions. Think of that match as a return on your investment – in this example, a return of over 50%!

Annual Salary = $50,000
You contribute 6% = $3,000
Employer matches 50% = $1,500

If you’re not participating already, you should. If you are participating, make sure your are taking full advantage of any employer matching contributions. If you don’t know what your employer offers, check with your human resources division to determine what retirement savings benefits might be available to you.

What if your employer does not offer a matching 401(k) contribution? Saving money is still a good habit to develop. If you saved and invested $50 week, in 30 years you could accumulate over $300,000!

Growth of $50 saved per week

Assumes 8% growth compounded annually at the end of the year. Actual returns and growth are subject to market fluctuations, and future investment performance is not guaranteed.

Assumes 8% growth compounded annually at the end of the year. Actual returns and growth are subject to market fluctuations and future investment performance is not guaranteed.

If you’ve got high-interest loans–say, higher than 8% or 9%–there is a valid reason to try and pay them down as quickly as possible. For example, if you paid $50 extra every month on a 15 year $20,000 student loan with an 8% interest rate, it could be paid off in 10 years – 5 years ahead of schedule!

If paying extra isn’t an option for you, look into any opportunities to reduce the interest rate on your loans: you may be able to refinance at a lower rate. Or, some companies offer interest rate discounts for “going paperless” and signing up for automatic payments. Every little bit helps.

Life is about choices and finding a balance. Don’t make paying off debt or saving for your future an either-or strategy. Take advantage of programs available to you to maximize your savings and minimize your debt. Make a plan to allocate to both in a way that works for you.

The Hills Bank Trust and Wealth Management Group have officers in both Johnson and Linn counties. We invite you to schedule a meeting with one of our experienced Trust and Wealth Management Officers by calling 1-800-899-8858. We look forward to serving you as your trusted advisor.

Investment products are not a deposit, not FDIC insured, not insured by any government agency, carry no bank guarantee, and may go down in value.
Erin Grabe

About Erin Grabe

Erin Grabe is a Trust Officer at Hills Bank’s North Liberty Location on Forevergreen Road. She serves customers in the areas of estate planning, estate administration, and personal trust administration. Erin earned her undergraduate degree at the University of Kansas and is a graduate of the University of Iowa College of Law. Erin can be reached at erin_grabe@hillsbank.com.


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