4 considerations for savings and debt


 

Key Points

  • Given the challenges of the past year, you might be reflecting on your financial goals.
  • A cash reserve, interest rates, taxes and employer retirement contributions may factor into decision-making.
  • You can strike the right balance with your savings and unwanted debt.

Coming off a year no one could have predicted, you might find yourself re-evaluating your financial goals and priorities.

Your Ameriprise financial advisor is committed to help. They will make savings and investment adjustments, if necessary, and will suggest how to prioritize your efforts. Here are four elements that may factor into your decision-making.

  • Cash reserve. Unplanned expenses are inevitable. An emergency cash reserve can help you pay for them and stay on track with contributions toward financial goals. In general, strive for three to six months of living expenses in a safe, liquid cash reserve. If you’d like, your advisor can confirm an amount that’s appropriate for your situation.
  • Interest rates. For lower-interest debt such as a mortgage or student loan, it may make sense to stick to the payment schedule if you earn more from investing than you would pay in loan interest. If you hold high-interest debt, your financial advisor can recommend whether to pay it off ahead of saving for specific financial goals. According to Investopedia, the median interest rate for over 300 credit cards in their database is roughly 19.24%.1
  • Taxes. Review potential tax advantages when deciding whether to pay off loans early. For example, if you take the standard deduction on your federal tax return, you cannot itemize a deduction for mortgage interest. As a result, you might lean toward paying down the mortgage. Always consult both your Ameriprise financial advisor and a tax professional.
  • 401(k) matching. If you are eligible for your employer-sponsored qualified retirement plan and your employer provides any level of matching funds, most advisors will recommend saving at least the amount equal to the match.

 

Find your ideal balance with help from your Ameriprise financial advisor

Your advisor is here to help you balance multiple financial goals and needs, including saving toward financial goals and paying off debt. They will help you prioritize so you can stay on track.

 

1 Investopedia Average Credit Card Interest Rate, updated Dec. 1, 2020.