Should You Pay Down Debt or Save For Retirement

Paying down debt and saving for retirement are two wise financial decisions, but they seem to contradict each other. Is it best for you to pay off your student loans, or does it make the most sense to put money towards retirement as soon as you can?

There’s no right or wrong answer, but if your income allows it, it’s typically best to budget your money so that you can pay down debt while also funding your retirement account.

Here are some factors to consider when deciding how to best use and invest your money.

Employer Retirement Matching – Save

Whether it makes more sense to pay off debt or to save for retirement greatly varies depending on your personal situation. One instance where it’d make the most sense to put saving for retirement first is if your employer offers a matching contribution to an IRA or 401(k).

A matching contribution is basically free money, so it makes sense to contribute as much as possible so that you can get the most benefit from the matching program. Some employers match dollar for dollar, based on a percentage. For example, if you make $80,000 a year and contribute 3% of it, you’ll be saving $2,400 on your own; with an additional $2,400 coming from your employer.

This allows you to double your money before tax savings and investment return. Even if your employer only offers a 50% match, you can’t pass up such a high rate of return.

High-Interest Rate Debt-Pay

Loans and credit cards with double-digit interest rates can have a huge impact on your monthly budget. If you have high interest rate debt (i.e. higher than 9%), you’ll want to focus on paying down that debt first. Otherwise, you’re losing hundreds, possibly thousands of dollars a year towards interest payments.

An effective way to pay off debt is to use the snowball method. This involves paying off your smallest debt first while making at least the minimum payment on other debts. Once the original smallest debt is paid off, you move to the next-biggest debt.

The snowball method of paying down debt is beneficial as it allows you to make (and see!) your progress.

The Ideal Option: Do Both

It’s not impossible to pay off debt while also saving for retirement. While it’s much easier to choose to do one or the other, you can make plenty of progress doing both. One of the best things you can do in order to tackle both of these financial goals is to create a budget. With a budget, you know exactly how much money you have coming in each month, your monthly expenses, and how much money you have leftover to put towards retirement and also paying off debt.

Creating a Budget

The first thing to do in creating a budget is to track your income and your expenses. Obviously, you know how much you make each month, so what’s even more critical is to track where your money is going. Write down all of your expenses for two weeks.

Having a list of everything you’ve spent money on can be eye-opening. It’s also a great way to pinpoint areas where you can save money. For example, maybe you can cut back on eating out as often during the week, which means you’ll have more money that you can put towards retirement or towards your debt.

As time passes, be sure to revisit your budget, especially as you pay off debt and have more money left over at the end of the month.

Make a Plan

Once you have a pretty good idea of your income and your expenses, it’s time to make a plan that allows you to meet your financial goals. This means you’ll need a plan for both paying off debt and saving for retirement.

When creating goals, be sure to make them measurable and specific. Saying you want to pay down debt is a good broad goal, but break it down. Maybe you want to pay off a certain credit card in six months while putting at least $100 a month towards retirement.

If you’re unsure of the best way to meet your financial goals, consider working with a financial advisor. A professional can guide you in making the best decisions so that you can make your money work for you. To find an expert that you can trust, be sure to compare financial advisors in Tampa on


Having to choose between paying off debt and saving for retirement can be a tough decision to make. Consider your financial situation and outlook before choosing one or the other. If you can afford to work towards both of these goals at the same time, you’re setting yourself up for a stable financial future.

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