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Pay Off Debt or Save for Retirement?

Get tips on how to juggle what you owe with saving for your future—and how to set your financial priorities.


Household debt has reached all-time highs, topping $17 trillion,1 leaving many to wonder whether they should pay off debt or save for retirement. In addition, most retirees still live with debt, and it’s not just their home mortgages. Among retirees, 71% carry debt not related to paying off their homes, with an average balance of just under $20,000.2

Are you caught in the debt versus retirement savings dilemma, or are you still paying down debt after your last paycheck? Financial consultants Trey Byrd, Josh Freeborn and Duo Tran discuss how to prioritize these critical financial goals.

Where Should You Focus: Pay Down Debt or Save for Retirement?

Our consultants believe that outside of a mortgage, most people should make paying down debt a priority. And it’s particularly important right now with higher interest rates.

The average credit card interest rate in the U.S. is 27.79%,³ almost three times the average annual return of the S&P 500 Index.⁴
Trey Byrd

Even though the markets could perform better than average in any given year, there are no guarantees—and they also can perform worse.

So, if your debt is costing you more than what you’re earning on your investments, any extra money you have (or can find in your budget) should be put toward what you owe. Once you pay off debt, use that money to invest regularly and build up your nest egg.

Which Debt Should You Pay Down First?

Not all debt is created equal, and some debt is worse than others. Typically, paying down high-interest debt, like credit cards, should be a top priority. Better debt has lower interest rates and can improve your quality of living, such as mortgages, student loans and car loans.

Our consultants suggest starting with high-interest credit cards, then personal loans, then vehicle loans and finally the mortgage.

Is Having Debt Worse When You’re Older?

Every age group carries debt, but our consultants say older generations may want to be more aggressive about paying it down sooner—preferably before retirement. Retiring with debt can be extremely cumbersome as you switch from a regular paycheck to a fixed income.

“Even if your retirement is well funded, wouldn’t you prefer to pay for the lifestyle and things you want in retirement rather than what you owe from years before?” says Josh.

Even though debt can feel more burdensome in retirement, our consultants have the same thoughts for any age: Pay off all consumer debt as fast as possible. That can help you free up more money to invest in your future.

If you’re younger, watch out for the debt trap.
Josh Freeborn

Additionally, if you can avoid debt to begin with, you may not find yourself having to make the hard choice of paying down debt or saving for retirement.

Trey says, “In general, taking on mortgage debt makes sense while you are investing. But I also encourage clients to make a concerted effort to pay off their homes, if they can, before retirement.” It can make retirement that much more enjoyable and less stressful.

If you’re a few years from retirement, you might also want to consider working longer to pay off debt before you cash your last paycheck. Other options could be a 401(k) loan to offset high-interest debt or consolidating debt to low-interest solutions. “These should really be a last resort,” says Duo.

That’s because these last two solutions may be hazardous to your financial health: You could miss opportunities for future growth in your retirement plan, or risk continuing the debt cycle after you’ve consolidated credit cards.

What If I’m Retired and Have Debt?

Having debt other than your mortgage can feel like you’re not retired at all. Retirement looks different for everyone, and our consultants believe it should not be a time spent battling fixed resources against variable costs—to the extent it causes you to miss enjoying those years.

While it’s preferable to pay down debt before retirement, sometimes it’s not possible. A potential solution is to consider taking money from your investments to pay it off, especially if you are already age 59½ and won’t have an early withdrawal penalty. (You could owe income taxes, depending on the type of account.) Trey recently had a client where this solution helped her transition fully to retirement.

“My client was working part-time and wanted to move into full retirement, but she was also carrying $15,000 in credit card debt. She had been paying on her balances with Social Security benefits and various other pensions.

“We withdrew the money from her investments and paid off her balances so she could make that move and not have to worry about debt,” says Trey. “It also helped her save in credit card interest and make the money she’d been paying each month work for her, not against her.”

Should I Still Invest for Retirement if I Have Debt?

If you’re not retired yet, saving for your future is an important goal, too. Should you forgo that goal if you have debt? Not necessarily. Investing in a workplace retirement plan, such as a 401(k) or 403(b), can help you save and possibly not see much change on your paycheck if the contributions you make are pre-tax—which essentially lowers your income tax. You can calculate the difference on your paycheck to see for yourself.

Plus, your employer may offer a match you won’t want to miss out on. “My personal motto is never leave money behind,” says Josh. “So if your employer matches what you contribute, take advantage of it.”

Paying yourself first is key. Consider tax-deductible IRA contributions or workplace retirement plans even if you’re in debt.
Duo Tran

Plan to Tackle Both Goals

Paying down debt is a financial goal like any other. And like other goals, an overall financial plan can help. Josh says, “Find a trusted advisor that can help you create a plan that addresses your current debt payoff needs as well as your future in retirement.”

You may tackle one, then the other goal, or your plan may include working through both. It all depends on where you are in your investor life cycle, how much you’ve already invested for retirement and how much debt you may have.


Financial Consultant Trey Byrd, CFP®
Trey Byrd, CFP®

Financial Consultant

Financial Consultant Josh Freeborn
Josh Freeborn

Financial Consultant

Financial Consultant Duo Tran, CFP®
Duo Tran, CFP®

Financial Consultant

Juggling Multiple Financial Priorities?

Let us help you create a plan to pay off debt and save for retirement.


9 Reasons Retirees Carry Debt, U.S. News & World Report, June 2023.


Household Debt and Credit Report, Federal Reserve Bank of New York, October 2023.


What Is The Average Credit Card Interest Rate This Week? January 22, 2024, Forbes Advisor, January 2024.


S&P 500 Average Return and Historical Performance, Investopedia, January 2024. Data from 1/1/1928 – 12/31/2023.

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