Debt Elimination Series
Debt · Pay vs Save
Pay Off Debt or Save
for Retirement First?
The most common money dilemma: extra cash flow each month — pay down debt faster, or contribute more to retirement? The wrong answer can cost you hundreds of thousands. The right answer depends on the interest rate and the time horizon.
Capture the employer 401(k) match FIRST
Even before paying off credit cards. A 50% employer match is a guaranteed 50% return. No debt charges 50%. Match comes before everything else.
The order of operations
401(k) match (or equivalent)
If your employer matches contributions — contribute enough to get the full match. Free money. Always first. A 50-100% return on the matched portion beats any debt rate.
High-interest debt (15%+ APR)
Credit cards, personal loans, payday loans. The interest rate is higher than your expected market return. Eliminate fast.
Emergency fund (3-6 months expenses)
Build a cash buffer in a high-yield savings account. Prevents new debt the next time something breaks. Don't skip this.
Max Roth IRA + 401(k)
Tax-advantaged growth that compounds for decades. Max what you can — these are some of the best wealth-building accounts that exist.
Moderate-interest debt (6-15%)
Student loans, some auto loans. Pay above minimum, but not at the expense of retirement contributions. Math is closer here.
Low-interest debt (under 6%)
Mortgages, low-rate student loans. Pay minimums. Invest the difference. Your investments should beat 6% over the long term.
The behavioral exception
Some people psychologically can't invest while carrying debt. The mental drag of the balance hangs over everything they do. For those people, paying off ALL non-mortgage debt first — even at moderate rates — is the right answer. The math is slightly suboptimal, but it's better than the alternative: doing neither well because of analysis paralysis.
Map your specific allocation
We'll review your debts, income, employer match, and goals — and tell you exactly where each dollar of extra cash flow should go each month.
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