How Can I Save for Retirement with Poor Credit?

Poor credit can take a toll on your finances, and a low score can even limit your opportunities later down the line. Even though you may have poor credit now, it shouldn’t stop you from planning or saving for the future. Learn how to save for retirement and improve your credit score while you’re at it.


Start Saving for Retirement Now

Making regular, affordable contributions into a retirement savings fund over a long period of time is one of the most reliable ways to save for retirement, regardless of your credit score. If you start saving early, you have more time to take advantage of compound interest, or interest gained on top of interest and the account balance. In other words, compound interest can help your money grow at a faster rate when compared to an account with simple interest, such as a checking account.

If your employer offers retirement benefits, consider opening an employer-sponsored plan and maximize any contributions they may provide. Some retirement options include the following types of accounts:

401k: These types of employer-sponsored retirement plans offer convenience with funds immediately drawn from paychecks.

Roth IRA: A Roth IRA may be a good option for self-employed individuals and/or those without an employer-sponsored plan.

Traditional IRA: Similar to a Roth IRA, this retirement account is another option for those who want an additional retirement savings account or a non-employer funded account.

For more information on retirement account types, use this IRS retirement planning guide.


Cut Back Expenses

If you live on a smaller budget, consider cutting down on monthly expenses in order to carve out more money out for your retirement savings account. Though you may not have a lot of wiggle room, the following strategies are a good starting point to help you cut back on unnecessary expenses:

Walk instead of driving: Whenever possible, aim to use alternative transportation, like biking, walking or ride-sharing to help cut back on gas, parking, repairs and wear and tear on your car.

Don’t ignore secondhand shops: If you need to make a specific purchase, consider searching on Facebook Marketplace or Craigslist, garage sales and/or other eco-friendly sources in order to cut back on any necessary expenses.

Cut back on entertainment costs: Comb through your entertainment expenses, from cable, TV, eating out and similar activities. Ideally, you can reduce these costs and/or replace at least some of these expenses with free alternatives in your area.

Pay Down Debt

If you have outstanding debt, aim to pay off any remaining balance(s). Ideally, you can start paying off outstanding balances with higher APRs in order to save money on interest, which is a debt elimination strategy called the “debt avalanche” method. Though saving for retirement is an important step, paying a high APR can eat away at your long-term savings and keep you from putting more money away for the future.


If you have overwhelming debt, it may help to reach out to your creditor(s). While your results may vary, they might be able to work out a new payment plan and/or financial agreement in order to eliminate your balance over time.


…And, Watch Your Credit Score Improve

Additionally, paying down any outstanding debt may also help increase your credit score. One of the biggest factors that impact your credit score is your credit utilization, or the ratio of your outstanding balances compared to your revolving credit limit. If you have a high outstanding balance, reducing the amount you owe, as long as you continue making on-time payments, may help raise your credit score over time.


Ramp up Retirement Saving When Your Budget Allows

While you may not be able to increase your income, ideally, any money that was spent towards outstanding debts can be diverted into your retirement savings account. If you have any extra money at the end of the month, consider increasing the amount of savings towards your retirement. You can change your contribution amount by contacting a customer support representative for your retirement account.


Consider Catch-Up Contributions

While this option is limited to those of a certain age, qualified participants can make additional catch-up deposits into a retirement savings account beyond the annual contribution limit, where applicable. In order to learn about the requirements for catch-up contributions, contact your retirement account’s customer service department for more information.


The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

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