Dear Kim,
I’m 52 and reentering the workforce after being out for nearly two decades to raise my kids. Now that I’m earning again post-divorce, I want to be smart about my finances, but I feel behind. I have my house free and clear, and I have about $20k in credit card debt that I got while going through the divorce. Should I focus first on building an emergency fund, paying off debt, or trying to catch up on retirement savings?
Sincerely,
Starting Over Strong
Dear Starting Over Strong,
There are some questions I have to start with: What do you have in savings? Did you come out of the divorce with any retirement savings at all? What interest rate is on the debt you have?
All those goals are worthy ones, and you don’t have to tackle them one at a time. If your employer matches your contributions to a 401(k) or other retirement account, you should contribute at least enough to receive the match. Save a little toward your emergency fund each month, and put the rest toward your debt.
You can use a debt snowball method by listing all your debt either by balance or by interest rate. If you go by balance, start with the smallest and work your way up to the largest. Pay the minimum on everything except the smallest one. Once that’s paid off, take that payment and add it to the next larger one, and keep going until each debt is paid off.
If you go by interest rate instead, start with the debt that has the highest rate. Focus all your extra payments on that one while paying the minimum on the rest. Once it’s paid off, move to the next highest rate, and so on. It can be very satisfying to mark each debt off as you go.
Kim
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