Should we get rid of our high-interest debt and then start saving, or put less money toward our debt and start saving? -- LuLu

A few months ago, Ryan D’Agostino, one of my colleagues at Money magazine, ran the numbers on precisely this question, and he found that you’d save the same either way. I know; it surprised me too!

People who have a 401(k) with matching dollars available to them make as much money as people paying down the high-rate debt of their credit card bills. So it evens out. But for psychological reasons, I think it makes sense to try to do both. Putting money into a retirement account makes you feel as if you’re doing something much more positive for your future than simply paying credit card bills.

What I’d suggest:

• Figure out how much money you have available for both challenges and split it evenly.
  

• Call your credit card company and ask for a lower interest rate. Sometimes, all it takes is asking. But if they aren’t immediately helpful, threaten to take your business elsewhere (although don’t actually close the account; that’ll damage your credit score).
  

• If you’re getting no relief from the company you’re using, transfer your balance to a lower-rate card.
  

• Set up a 401(k) with your company. Let an HR rep help you figure out what pretax percentage will give you the money you’ve budgeted toward this account. You want to capture as many of those matching dollars as possible.

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Jean Chatzky is a money coach and the financial editor for the Today show. She is the the author of of five books including the upcoming Make Money Not Excuses: Wake Up, Take Charge and Overcome Your Financial Fears Forever.
>> Buy it now
>> Check out her website, jeanchatzky.com

-- The Nest Editors

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