Pay Off Credit Cards Or Save For Retirement?

You just turned 30 years old, and are still have credit card debt hanging over your head.   While you were out partying and paying off student loans during your 20’s, you realize that you haven’t saved a nickel for retirement.   The debate begins in your head.   Do I pay off the $10,000 of credit card debt or do I save the maximum I can in my 401(k)?

The Dave Ramsey’s of the world would always say to pay off debt first before saving in a 401(k).  These are the personal finance situations where I don’t agree with a Dave Ramsey because it really does depend on your personal situation.

The first thing I would look at is whether your company offers a 401(k) plan that has a match.  For example, if you put away 6% of your salary and your company matches 3% it would be an instant 50% return on your money if you stay with your company long enough to earn the match.   Some companies may also offer a discounted stock purchase plan that would give you a 10% or 15% discount on the stock.  Especially with the 401(k), the match, and the time value of money getting started on a matching 401(k) plan is likely to be a good idea if you are 30 years old.

When you consider your overall debt, it is important to pay off all of your non-deductible debt such as credit card loans as other debt because some debt such as your home mortgage will have a tax advantage for you.   Some of these loans may be able to be consolidated into a low interest rate or temporary zero balance rate which could help you keep your overall balances lower.   I am a big fan of paying off your lowest dollar balance card vs. the highest interest rate card because I am a believer that seeing a victory only leads to more victories.

Doing a thorough analysis is an important step in choosing retirement savings vs. debt, but I truly recommend doing both versus one or the other and here is why.   Being financially successful is as much emotional as it is financial.   Smaller win in your money get you to believe you can have bigger wins— it makes you smart emotionally.   You work hard to pay off your debt, but if you see nothing in retirement you may feel defeated.    The same is true if you save a lot for retirement, but never pay down your debt.   Setting realistic goals and growing your assets while reducing your debt will help you feel emotionally good about achieving the ultimate goal of being debt free and having financial independence.   Don’t let the math fool you because crunching numbers isn’t the only financial analysis you should do.

The next decade will be here before you know it . . . .

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves


My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

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  • Avatar
    August 19, 2010

    I would say that saving for retirement is more important than paying off credit cards. Once you retire, and your money remains in a 401k, it cannot be garnished anyway. And it is likely that credit card companies won’t come after you although they could. But if you are retired they can’t touch social security, they can’t touch government pensions, they can’t touch 401k money, and they can’t touch a homesteaded home. So if you are nearing retirement age, save, save, save. If you have to walk away from the cards upon retirement the lending companies should have thought of that a long time ago.

  • Avatar
    August 19, 2010


    Thanks for the great comments, and I am glad you enjoyed the article. I guess we can never say the word can’t with what the Government may be able to touch. As we have seen in the past year, many old and traditional rules have been changed very quickly based upon our challenging economic times. It is true that 401(k) can be protected from credit card companies for garnishment, but remember readers that it can be garnished for other matters such as domestic cases such as child support. Thanks for the great post!

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