paying off debt vs paying into IRA

I have alot of credit card debt with high interest rates. Do I try to pay those down before paying into an IRA? I only have $13,000 in my IRA and am 50. I have been paying into this on a monthly basis since mid 2013 but cannot get credit card debt down. (used to have much more before job loss, business loss, etc.)

Thanks.

Terry Says:  This is always a tough question, and I typically say it’s NOT either/or.  Do both!  But I know that is tough advice.  So let’s look at it mathematically. Last year was a strange one for the stock market — a gain of nealy 30% in the S&P 500 stock index.  Typically, over a 20 year period, the average gain is about 10% annually, including dividends reinvested.  That’s why it’s a good idea to invest in stocks for the long run.

BUT, I’m betting that you are paying at least 18% interest, and maybe more, on your credit cards.  That keeps putting you deeper into debt. If you are only paying  the minimums, it could take you 30 years to pay them off —  and you’ll pay 4x the money you charged initially in interest along the way!

The secret to paying down credit card debt is to DOUBLE THE CURRENT MINIMUM MONTHLY PAYMENT — and pay that same amount every month, without charging another penny.  Your card will  be paid off in about 3 years.  (Remember, write down the current 2xminimum — and pay that same amount, not the new monthly minimum, every month!)  Make it an automatic debit from your checking account so it gets paid regularly.

Then three years from now when your card is paid off, keep putting that same amount into your IRA.  That’s the strategy you can use to get out of debt and get going on retirement savings.

You say you “can’t afford” an automatic payment that size?  Take a look at your pay stub — see the FICA (Social Security).  Bet you can’t afford that, either!  But it’s coming out, regardless.  Do the same for your debt, then your own IRA — Both are a much better bet!