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Managing your household debt while saving for the future

According to our 2014-2015 study, "Financial Experiences & Behaviors Among Women," the women surveyed say they want to pay down debt and are growing more confident in their ability to manage day-to-day finances, but are still concerned about longer-term planning, with only 33 percent of women feeling like their on track/ahead of schedule in planning for retirement.

The challenge of paying down debt while saving for the future can be daunting—especially in today's economic environment. For many, paying off debt is easier and more emotionally satisfying than building up savings. That's because debt obligations can be whittled down in concrete chunks, while savings goals are more ambiguous and can change as easily as changing one's mind about how much to save. But you can—and should—do both.

Managing household debt
You can manage your household debt by:

  • Reducing excess spending. Cut back on the little things that add up, such as store-bought coffees and impulse buys at stores. Doing so may save you hundreds of dollars at year that could be put toward credit card bills. Discover why we want things now and how that behavior affects our finances later.
  • Paying in cash, rather than credit. You’ll likely spend less—and incur less debt—if you resolve to pay in cash.
  • Consolidating current debt. If you’re balancing debt on several credit cards, student loans and car loans, look into consolidating it so that you have a better sense of how much you owe, and can set a plan for paying it off.
  • Making regular payments. Try not to miss a payment on your current debts. Doing so causes you to accumulate late fees and additional interest, and affects your credit score, which will make it difficult for you to get future loans.
  • Making extra principal payments. Adding an extra principal payment here and there will reduce the interest you pay on the money borrowed. If the percentage interest rate you pay on a loan is higher than the rate your savings and investments are earning, you’ll generally do better by paying the debt, even if you have to use some of your savings to do it.
  • Refinancing your mortgage. Speak with a mortgage broker to determine whether refinancing your mortgage will save you money. Home equity lines of credit are another way you may be able to pay back the money you owe at a lower interest rate.

Saving for the future
Saving for the future is just as important as paying down your debt. Every little bit that you save will add up over time.

  • Put money in savings every month. Try to put money into an interest-bearing savings or investment vehicle so that you have a rainy day fund or money saved up to reach financial goals. A financial professional can help you determine an investment plan appropriate for your situation.
  • Contribute to company 401(k) plans or an IRA. In addition to saving for a rainy day, you should start saving for retirement through company 401(k) plans or an Individual Retirement Account. Contributing money to these accounts offers tax benefits. In addition, companies often offer a company match up to 6 percent to their 401(k) plan participants, helping your money grow even faster.

Don't let the seeming urgency of current debt cause you to shortchange your future. Give your long-term financial goals their due. Find a balance and take an approach that considers both your immediate needs and your long-term goals.

Insurance issued by the Prudential Insurance Company of America, Newark, NJ, and its affiliates. Each is a Prudential Financial company that is solely responsible for its own financial condition and contractual obligations. Our policies contain exclusions, limitations, reduction and terms for keeping them in force. A licensed financial professional can provide you with complete details. The availability of other products and services varies by carrier and state. Prudential Financial, its affiliates, and other financial professionals do not render tax or legal advice. Be sure to consult with your personal tax and legal advisors.