[Kayla Buell – Ambassador]

I’m on the Dave Ramsey plan and yep – that’s what he teaches. Pay off debt before contributing to retirement. I’m currently in the same boat because I’m contributing to retirement and still have about $12k of debt left to pay (my car). I’m trying to convince my hubby to temporarily stop our retirement contributions until we’ve finished paying off the debt.

The good news for you is that if you’ve been contributing even a little bit at your age, you’re definitely better off than most people. I think you ought to finish paying off your debt and then start tackling retirement. Watching yourself make progress will definitely motivate you to finish paying it all off and get back into the swing of things in terms of your 401k.

[Cara Reynolds – SUM180 Community Manager]

Hi Kelby,

This is a great question! I believe the answer is, “It depends on your debt.”

– If your debt is credit card debt (usually a high interest rate, therefore very expensive over time) then you should pay off your debt first, 100% – THEN tackle saving for retirement.
– If your debt is “smart” debt (things like a car loan or a home mortgage, which either help you go to work or build equity) then the ratio is a little different. In this case, Sum180 recommends putting 2/3 of your resources towards paying off your debt, and 1/3 towards saving for retirement.
Note: If your debt is a student loan, it only qualifies as “smart” debt if the interest rate is lower than 8%.

I hope this helps!

[Kelby Green – Ambassador]

Thanks, Kayla and Cara! You both bring up some really good points.

[Lisa Talley]

There’s some really smart advice in this thread. I admit, it’s hard for me to always do the professionally recommended thing. Carrying debt just makes me anxious, so I’d rather deal with that and feel better right now. Whereas retirement still seems years away…

[Antoinette Minor – Ambassador]

I believe in doing both at the same time. Paying into your retirement can be as little as a few dollars per pay and if you are getting a match it doesn’t make sense to stop your retirement efforts just to put a few extra dollars towards your debt. That money will be much more worth it with matching and compounding interest.

I would say find a good balance. Life happens and while we all plan to retire by a certain age most people go out on retirement much sooner than expected due to illness and other circumstances we didn’t plan on. A few dollars today can be thousands later.