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Contrary to popular belief, you don't need to be debt-free to start saving for retirement. The sooner you put away money for retirement, the less money you'll need to save in future years to meet your goals — and any money you save and invest today can potentially benefit from years of earnings growth.

So how do you balance saving with the need to pay off your debt? Here are four tips.

1. Make a budget. Creating a budget can help you get a better grip on your spending habits and regular expenses, such as debt payments, so you can find ways save more. By better understanding where your money goes — and sticking to a spending plan — you can find new opportunities for saving more. Determine how much you save every month, and divide those savings into separate pools. Direct some of your additional cash flow into your workplace retirement plan, and use the rest to pay down your existing debt.

2. Pay down high-interest debt first. Reduce the overall cost of your debt and, in turn, boost your savings potential by paying off your loans with the highest interest rates before lower-interest debt. For example, if you have a credit card with a 12% annual percentage rate (APR) and an auto loan with a 6% interest rate, consider paying off the credit card first. (Of course, make all your payments on time and pay the minimum amount on every loan account each month so you don't incur unnecessary fees.)

3. Increase your savings contribution as you reduce debt. Keep your savings growing by increasing how much you save in your workplace retirement plan as you lower your debt. For example, if you are paying $500 a month on your credit card loan, when that account has been paid off, consider increasing your retirement plan withholding by $200 and paying the additional $300 a month against your car loan until that is paid off. By increasing your savings gradually, you can make up for lost time and help ensure you meet your retirement savings goal.

4. Put your savings on autopilot. One of the best ways to ensure you save — and not overspend — is to make automatic contributions to your workplace retirement plan. The money comes out of your paycheck, so you save it before you have a chance to do anything else with it. This type of forced savings can be effective because you determine in advance exactly what percentage of your pay you want to save.

Even if you're paying off debt, it still makes sense to contribute at least a portion of your pay to your workplace retirement plan. Your employer may even match your contributions, which can help you reach your savings goals even sooner.


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