Dear Penny, My husband and I are seniors who are currently working full time outside L.A. We have one month’s savings and not much in retirement due to a move and one of us being unemployed for two and...

Dear W.,

One of the only good things about the dumpster fire of a year that is 2020: COVID-19 inspired a lot of people to clamp down on debt, as you and your husband did. Paying off $19,000 of debt in well under a year is a huge accomplishment. For that, I’d give you a high-five — or maybe a pandemic-friendly elbow bump — if I could.

Before I tell you what I think you should do, let’s acknowledge that $51,000 elephant of a tax bill. I don’t know the circumstances, but I certainly hope you’ve spoken to a tax attorney and negotiated a payment plan. Since you didn’t ask me about the tax debt, I’m going to assume that you’re on track to get right with the IRS and focus on whether to attack your debt full force vs. boost your savings.

I think you should make building an emergency fund the priority. I get that it’s frustrating to see your $200 a month basically go up in flames when you fork it over to your credit card company. But the best thing you can do is set yourselves up so that you never have to turn to a credit card again. If you can break the cycle of relying on credit cards, you’ll come out ahead, even if that means wasting some money on interest in the short term.

Keep making minimum payments on all your debt, of course. But beyond that, focus on saving enough so you have at least a three-month cushion. Granted, that’s easier said than done, especially since you live outside of Los Angeles, where living costs are no doubt high.

But you’ve already been able to shed $19,000 from your budget over just seven or eight months to pay down debt. I have no doubt you can build your emergency fund just as fast and furiously by putting some of that money you were using on debt payments into savings. Once you have a three-month rainy-day fund, focus again on stomping out that credit card debt once and for all.

Your bigger issue, though, is that you’re rapidly approaching retirement without much of a nest egg. You’ve clearly made significant headway during the pandemic, which no doubt required discipline. But a lot of people have found that it’s been easier to live more frugally because they’re staying home so much more. Your challenge now is to keep your new normal so you can pay off debt and invest as much as you can for retirement.

If you contribute to a 401(k) plan and get an employer match, keep doing so. But beyond that, pay off your credit cards before you invest, as the interest is probably costing you more than what you’d earn. Plus, your eventual retirement will be a lot more comfortable if you’re as close to debt-free as possible.

After you’ve paid off the credit card and student loan, invest as much as possible in both an individual retirement account and an employer-sponsored plan if you have access. Assuming that you haven’t started taking Social Security, I’d urge you to keep working and delay your benefits as long as possible to maximize your payments.

You’ve experienced some big setbacks, but you’re getting back on track. Having an emergency fund and eliminating high-interest debt are two of the best things you can do to prevent another setback from derailing your plans.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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