Pay off Debt or Save for Retirement

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  • #5186

    I’ve been contributing to some sort of retirement plan since I started working at 18, even before I had any understanding of what I was actually investing in. I guess that’s because based on conventional wisdom (read: what your parents strongly encourage you to do) you should start saving for retirement as soon as humanly possible.

    And I get it!

    My mother started saving for retirement later in life and as a result, has had to continue working longer than she originally planned. Clearly, she doesn’t want the same for me.

    The thing is, I have A LOT more debt than she had at my age and I feel like holding off on saving for retirement in favor of knocking out debt will benefit me and my family in the long run.

    Now, I fully understand that I’ll miss out on the opportunity for compounding interest and my wife’s 401(k) match (I’m self-employed so I don’t get that benefit), but I think that may actually serve as motivation to get the debt knocked out at a faster rate. Not to mention we can start maxing out contributions once we’re back on track and don’t have a ton of debt hanging around.

    What are your thoughts? Have any of you stopped contributing to a retirement plan in favor of paying off debt?


    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.


    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!


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


    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…


    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.

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