Should I Save For Retirement While In Debt?

This article is by Adam from Money Relationship. Subscribe to his site to get updates about his journey out of $150,000 in debt.

That’s a question that a lot of people ask while in debt. Dave Ramsey, possibly the most popular debt counselor, recommends that you stop ALL retirement saving while eliminating debt. He argues that it gives you a huge advantage because you have a lot more money for your debt snowball.

I am a little more liberal when it comes to this rule. I think that it should be based on some other factors as well. For example, our current pile of debt is so large that we will be missing out on 5+ years of retirement saving (the amount of time it’s going to take us to pay off this debt). When you add compound interest into the equation, it means that we would be missing out on a lot more money. Let me give you our situation as an example:

I currently work for the Government and am offered a 5% match for money I put into the Thrift Savings Plan (fancy government word for 401k). That means that for every dollar I put into the plan, they match me 100% up to a 5% of my income. That’s a guaranteed 100% return on my money and I can invest it in any of their funds. However, if I didn’t contribute to the plan, I would miss out on that free money. Plus, I would miss out on 5+ years of compound interest.

Now, I am going to put some numbers to the scenario. Let’s say I start putting 5% of my income (plus the match) into the plan starting today (age 25). By the time I reach age 70, I will have almost $2.5 million in the account assuming an 8% return. Now, if I wait 6 years (best case scenario for debt repayment) and start investing the same amount per year, I will only have $1.7 million in the account. Still not bad, but almost $800,000 less than if I would have started at 25. Here is a graph of this example:


So, as you can see, starting to save for retirement 6 years from now instead of today will cost me about $800,000 in retirement savings by age 70. Am I really going to pay that much more in interest by not stopping my contributions? I don’t think so!

So, I guess the question is, when should you stop contributing to retirement in order to clean up your debts? Should you do it if you can get the debts paid off in 2 years or less? 4 years or less? What is the magic number?

All I can say is, I am not missing out on almost $800,000 in retirement growth to save MAYBE a couple thousand in interest charges.

What are your thoughts on the subject? Can you think of any reasons why I should be STOPPING my contributions?


  1. The situation you describe is unique to you and I think it may not apply to most people. Having an employer match contributions is increasingly rare and 5% is generous. A match is free money but without it you rely on rate of return. The 8% assumption is common but there is a lot of risk here. How many here have actually seen 8%?

  2. How timely – I just joined my company’s pension plan yesterday. I put in 5%, they put in 12.5% – gross.

    How can you pass up that amount of free money?

    And yes, I’m also in debt, but only and the two largest purchases you’ll make (house and car). I’m working towards saving up and emergency fund, and will soon have to pay school fees.

    But – free money from my employer? That’s worth more that attacking the debt in my eyes, and falls into one of the tenets of The Richest Man In Babylon: pay yourself first.

    Interestingly, I’ve heard it said you should save 1/2 your age as a percentage of your net monthly income towards your pension. I’m 38, so I need to save 19% of my monthly net income. With the pension plan, and the company’s contribution (both before tax) I’m saving about 23% instead – good times.

  3. I think you’re doing the right thing. While I buy Ramsey’s argument that paying off debt quickly is part numbers, part psychological, there’s also something quite motivating about seeing your savings grow.

  4. If you don’t pay yourself first, you will never feel like you are getting ahead. So you take 5 years to pay off your debt and have saved nothing – your still at square one wishing you had done things differently.
    I feel good about aving while I eliminate debt.
    it’s good for the financial soul!

  5. I agree with your logic as well. I continue to save for retirement even though I don’t have a employer match program. I don’t want to lose the years in for compound interest and market growth.

    I also know people who work for the government, and given how programs and funding change, take advantage of the 5 percent while you’ve got it, but don’t count on it forever!

  6. Adam, of course since you are familiar with Ramsey I’ll guess you’ve heard him explain WHY he recommends doing it this way. It’s all about focused intensity. Getting out of debt paves the way for you changing your behavior for the rest of your life. The fact that you’re losing that generous 5% match should piss you off enough to where you start taking extra jobs, budgeting every penny, and making the vow “I will never go back into debt again” actually mean something.
    Ramsey admits that the mathematics of the situation are not the issue; this is why he says pay off your debts smallest to largest regardless of interest rate. It’s the behavior that makes the difference. You are using math as a trump card for all other considerations. But anyone who is a student of human behavior knows math isn’t what guides our daily lives. Look at smokers for example. They waste how many thousands of dollars a year on tobacco, pay higher insurance premiums, and shorten their lifespan by year. Smokers intellectually can grasp the concepts; it’s simple math. Yet their behavior often doesn’t change. Math isn’t the answer always. Kudos to those who have overcome their addiction. You could say the same about non-smokers who don’t exercise. We all know exercise is good for us, but how many put in the doctor recommended 30-minutes a day workout? The statistics are in: people who exercise generally live longer, heathier lives. So why so many couch potatoes and 50% of Americans classified as obese?
    Every since I started following your story I’ve seen you vacillate from side to side. First you were wanting to pay down debt, but you spent several posts rationalizing how you had to keep and outrageously expensive car. Then a few months later you decided to sell your car. Now you’ve found another excuse to stay in debt longer: all that free money. I see the math, I understand the math, but I disagree that math should be the sole driving factor here.
    Your story is yours to write, but the score as of today is you’re $150K in debt and Ramsey is a debt-free multi-millionaire. This is not a personal attack or a slam; it’s simply…well, mathematical! His plan works. Please reconsider what you’re doing from a non-mathematical standpoint and ask yourself if this is really the best way. Good luck whatever you decide.

  7. Actually, DR recommends suspending retirement contributions if you can get out of debt within 2 years (usually). For circumstances when someone has a long-slog towards debt freedom (as your 4-5 years indicates), he backs off that stance. I have employer match on 55% of the first 6% – but it’s total annual contributions rather than per pay period. So I opted out for this first 6 months of the year, freeing up $160/payperiod (impacted by increased tax withholding). This will allow me to increase my snowball and eradicate 2 of my debts by July, the payments for which will allow me to up my 401K contribution to 12% for the latter half of the year. I am focused and determined to make this happen…If I were in your shoes, I wouldn’t turn down the free $$ either.

  8. It think asking this question in terms of how long your debt will take to be paid back is the wrong approach. But the way you’ve actually described your situation, you’re taking the right approach.

    It’s not about the time, it’s about the return. If your retirement savings will earn more than your debt costs you, then keep saving. If you don’t get an employer match and you have credit cards at, say, 20 %, then pay them first because the chances are your investments won’t return that much.

    And the thing people ALWAYS overlook in this equation is that reducing your debt reduces your expenses. The fewer expenses you have in retirement, the less you actually need to save for that retirement.

  9. Seem pretty obvious to me… a 100% return on your 401k investment wins.

    The key is to only put in as much as the match, then fight your debt mountain fiercely! In your case, I’d forget about the debt snowball and even channel money into the credit card with the highest percentage rate first. Your pockets will thank you later, with less interest payments… I’d even recommend tracking your interest payments per month, so you can watch it shrink monthly… I like financial feedback 🙂

  10. Personally, I have always tried to save some for retirement every year – even when I was in debt. The compound interest speaks up, and it is money that cannot be “made up” later… like the yearly limits for the IRA’s etc, once missed, cannot be made up.

    And most people will be in debt for a long long time – like the mortgage….so to suspend the retirement savings seems a bad idea. However, every situation is different.

    My present employer contributes 3% and I have a guaranteed 6% interest rate… so for me, that’s free money and I need to do it.

    I think MOST people, if in debt and contributing to savings, will try HARDER to make sure they are still getting the debt paid off…. meaning they will find the savings money, and then hustle the debt payment money harder. Win win… 🙂

  11. @Adam: I held off on retirement savings until I was out of debt, and looking back I think it was the wrong decision. We are now debt free, but WAY behind the curve when it comes to our retirement balance. Catching up is hard to do thanks to contribution limits (and we’ll never get back the lost compounding gains).

    I would personally recommend a one-year rule. If you can be debt free but the house in one year, meaning you are so close you can taste it, hold off on retirement contributions that year and knock out debt. Anything longer, keep plugging away at retirement up to the match, or a reasonable level of income if no match (maybe 5-10% until debt free).

    Great discussion!

  12. Here’s another ‘food for thought’ angle on the mathematics of the situation.

    You’re assuming several things: First, you assume will continue to be employed for the next 5 years it takes to get out of debt at the same employer and receiving the same match. What happens if you get laid off after 3 years and you still have a pile of debt? Your emergency fund will last much longer if you have no debt, giving you the chance to avoid the hassle (and potential penalties/tax) of tapping your retirement dollars.

    The second assumption is the average 8% return. This has not been the case over the past 10 years. If you had been following your plan for the past decade, odds are you’d have done far better to clear all this debt out of your life.

    The third assumption is that you’ve broken your love-affair with debt. You’ve made some excellent progress, but the debt hole is still big. Debt has to be your enemy.

    The fourth assumption is…again…the mathematics. Remember the people buying California, Arizona, and Florida real estate? Math was on their side. Housing prices ALWAYS go up 5 – 10% a year, right? They got into piles of debt.. They took out 3% 5-year ARMs and figured they’d refinance or sell in a few years. When the economy hiccuped, CRASH! Math is great over the long term like the 80 years of the stock market since the Great Depression. But we’ve seen proof that sometimes the math sucks in the short-term or even the middle-term. Sometimes the math and the ‘experts’ are wrong.

    Everyone here seems to be coming down on the side of logic and math. That’s fine. But as Ramsey notices, 100% of foreclosures happen to houses with mortgages.

  13. I’m not sure you’re completely comparing apples to apples in your mathematical anaylsis.

    If you took the money that you were going to invest and used it to pay down debt, you could be out of debt in 48 months instead of the 72 months it would take you to do both investing and debt reduction at the same time.

    Then when you’re out of debt, you’d have 24 months where you could ramp up the investment contributions, to equal what you would have put in during years 1-4, while keeping years 7-45 the same.

    So if you were to invest $18,000 over 6 years (while paying off debt), at 8% ( the match) it would grow to $956,000. If instead you invested the same $18,000 in just years 5 & 6 it would grow to $813,000. You should have $18,000 extra in years 5 & 6 because you are done paying debt. (year 7-45 would remain the same under both scenarios).

    So you’re really talking about $143,000 difference instead of $800,000. Still a lot of money, but not nearly as big.

    (Caveat – if they won’t match the full $9k per year in years 5 & 6 that changes the math significantly – to $540k instead of $813k, still a $400k difference instead of $800k).

    The other factor to consider (which Ramsey likes to remind us all of) is Risk. We all know 401k’s don’t return a consistent 8% year over year. We do know that paying down debt reduces risk.

    Would you borrow $18,000 over the next 6 years to invest it in the market? If not, how is that different than what you are suggesting here?

    Mathematically I agree that it makes sense to contribute up to the amount the company matches. Behaviorally I agree that it makes sense to get intense about paying off debt so you can scream “I’M DEBT FREE!” sooner. Just pick the one you prefer more.

  14. @Sid – I’m not bashing Ramsey’s logic. I actually believe that most individuals in debt should pay them smallest to largest. Just like he says, it all about the small wins.

    However, I don’t feel it necessary to give up so much in retirement savings to save a few thousand in interest payments. You may not think that we are “gazelle intense” but we are. Blogging is my second job and my wife is taking another job during the summer months when she has off.

    Besides, Ramsey is a multi-millionaire because he sells a great product, not because he followed his plan.

    @Krista – You’re right. I should have talked about that a little more. If you are paying 29.99% on a defaulted credit card, retirement is the least of your worries.

    Our highest interest rate on debt is 11.00% and that is only for a couple thousand. Besides, that interest doesn’t have 55 years to compound either. It will be eliminated way before that!

    @Frugal Dad – One year sounds pretty good. I was thinking maybe 2 years max.

    It stinks that you are behind the curve on savings. That’s kinda what I am trying to get at here. You were right that debt is bad and it should be eliminated, but now you are paying the price for being behind on retirement. I just don’t want to be in that situation several years from now.

  15. I agree with Adam. We have a mortgage and a car payment, but we will continue saving for retirement.

    My 401k is matched 100% up to 6%…I only make $35,000 a year, so I take full advantage of the 401k! We also fully fund a Roth IRA and will be opening and fully funding another one starting this year. My husband also makes his required pension contributions.

    We are putting extra towards the principal of the mortgage, but we will continue funding our retirement as well. The difference of paying off our house in 5 more years instead of 8 more years just won’t make up for the loss to our retirement fund. Either way, we will be completely debt free by 35…that’s good enough for me.

  16. Adam, I agree with you on the issue of the employer match. I think it’s smart to contribute up to the match. My opinion is that it would be irresponsible to pass up a 100% return on your money.

    Make sure you are aware of all of the fine print, though. For example, I am about to leave my current employer after only five years. I just found out last week that employees only get to keep the match after the five-year anniversary of their hire date. In other words, I get to keep what I’ve invested and the interest on that, but I am forfeiting the entire match for the past three years.

    It’s been awhile since I was in the military, so I can’t remember exactly how the TSP was structured. Just make sure you are aware.

  17. A very critical view and i like it. I personally lean to the view point of Adam, I am a great fun of Dave, i have been through the FPU series and i can go on and on….
    However, if you are 21years and a pile of debt i would say stop everything else and clear that debt – do not even think retirement.
    If you have already hit the Big 30 like i did this year, and a big load of debt retirement is so real you cannot ignore it.
    We are starting a retirement fund but we will continue being aggressive on kicking off the debt!

  18. Adam, you are right that being debt-free isn’t what made Ramsey a multi-millionaire. However, sharing his system (which works) is what made him a multi-millionaire.
    You probably know his story: up to his eyeballs in debt and life finally caught up with him. It’s the same story you’re telling with a different angle. Risk…the word is RISK.
    What will you do with your debts if you gain laid off or injured and no longer can work? Once your savings are gone, you’d have to cannibalize your retirement plan (plus take a hefty income tax hit).
    You’ve got your mind made up, and neither I nor GFish are going to be able to change it. I’m only inviting you to step back from the numbers, put down your calculator, lay aside your spreadsheets for just a moment. Consider the reason most businesses and individuals go bankrupt is because of debt. DEBT = RISK. I haven’t heard too many stories of debt-free people going bankrupt. I’ve heard plenty of stories of debt-ridden household going bankrupt. Sure, they all had a plan just like your plan. They all had spreadsheets and calculators just like you. And yet, life happens. And when it does, it sucked them down to zero.
    I agree with Ramsey that once you’ve eliminated all your debt except the house it’s time to pile on the retirement. You probably are more intense than some, but I don’t think you can say you are gazelle intense in the same way Ramsey means it. The gazelle is fleeing for it’s life, not meandering casually or jogging along or even running sprints. He’s GET ME OUTTA HERE I’M ABOUT TO DIE! intense.
    If you really believe in your system, I challenge you to do the following: max out your credit cards and sock all the money into the 8% a year mutual funds you love. Then transfer all of that balance to a 0% card. You’ll pay no interest and make thousands. Ok, anyone besides me think that’s a ludicrous strategy? Why? RISK! What if a card company won’t transfer the whole balance? What if the bank fails to apply my payment on time and I get zinged with a 25% retroactive interest rate? What if, what if, what if…? The word is RISK! If this idea sounds nuts to you, then you’ll know why I’m encouraging you to look at ALL angles of this equation, not just the input and output. Life isn’t a computer.
    Congrats on trying to get out of debt. I hope it goes well for you.

  19. Actually, I’ve heard Dave say on more than one occassion, if your employer matches your retirement contributions, you should not miss out on the “free money”. Personally, my employer doesn’t match, but I still put 10% pre-tax savings into my TSP, simply because my take home pay doesn’t change but by a few dollars. We put everything extra we can find on debt. And having returned from a recent deployment where I got a pretty good daily per diem, we were able to put even more towards debt. Now we have a couple bills to go and we’re done with debt!!!

  20. I personally chose to do something much like what you’re doing: I contributed enough to earn the maximum match from my employer and then focused the rest of my money on debt repayment. This made sense to me because money I put into retirement funds is going to compound for many, many years past when even a bleak scenario would have all my debt paid off.

  21. I am a big fan of Dave Ramsey but have to disagree with him on that subject. I also believe the interest paid will not make up for the income lost saving for the extra years. While you would lose 800 grand, being close to 50 if we wait, we can really hurt our chances of having any decent money by retirement.
    I think getting out of debt is very important and we are working hard to do that BUT we are saving 5 percent and every year when he gets his 2.4 percent raise we are going to raise our contributions by 3 percent. We want to have a comfortable retirement and I think Dave Ramsey is off the mark on this one subject.

  22. Money is a little tight for us right now, but there’s no way I’m putting the brakes on my contributions. The compounded interest over the next 30 or so years will make it worthwhile. I would rather struggle a little now – when I am young, healthy, and up to a challenge – than struggle when I am 75 years old. I don’t expect a luxurious retirement by any means, but I do hope it will be relatively worry-free from a financial standpoint.

    A 5% match is great – you are so lucky!

  23. Great post! What’s interesting was the couple that I mentioned in the comments for your financial infidelity post was dealing with the same situation: do we ransack the retirement fund to pay off the $25k debt? I told them yes–they were dealing with credit card debt and those revolving interest rates are killer. Much better to clear that slate because the interest lost on the retirement savings would be minimal compared to the interest accruing on the credit card debt.

    If you’ve got a student loan with a low interest rate, then it might make sense to delay paying off that debt in favor of saving for retirement.

  24. Adam if you wait 6yrs to pay off your debt, you should be able to put way more into retirement. Allowing you to catch up, right? So my job gives you $1.60 for every $1 up to 2.5% of your salary. So that means I make a 160% off my investment right of the bat?

  25. Thanks for this column. My husband and I have low interest debt, but a lot of it. We’re 1 year down in our 5-year plan to pay off more than $100k. We’ve been passing on a corporate retirement match offer of 4.5%. Thanks to this column and all the comments, we’re going to start it up. Too good to pass up.

  26. Sid – are you serious? Ramsey can’t go 15 minutes without telling listeners how cool his products are and how we all should be buying them. I have read the Holy Ramsey Bible and it isn’t all that fantastic (and no, I didn’t buy it – borrowed it from the library). Mostly, it is common sense – not rocket science. I think most Americans cannot wait until they have all the cash they need to buy a house. Renting is a waste of money. Why rent at $1800 a month to avoid paying a $1500 mortage payment, it’s nuts. So is selling an almost paid for good car to buy a beater (as Dave has recommended so many times) and wait until you have enough to buy another car. Beaters cost money to run…why does he never speak of the repairs involved with buying a beater and selling a perfectly good car because you are in debt 5k. No way a 1k emergency fund will take care of a beater repairs. Some of his logic is just plain nuts and ALL of his logic feeds his pockets. The guy is an opportunist – he feeds on consumers. Unless you start saving when you are 22, waiting until all debt is gone to save for retirement will only leave you living in poverty when you no longer have earning potential. I’m not saying all his logic is wrong – just that consumers should be aware that he is a salesman first and foremost. Yes, he has become a multi-millionaire, but in a capitalist society it takes lots of poor people to produce one millionaire. Plus, he makes a lot of money off renters…is is merely coincidence that he pushes renting over a mortage? I don’t think so.

  27. Stacie, do you believe the saying “the borrower is slave to the lender” When you go into debt, of anykind, you are signing up for slavery. Sure Dave sells a lot of product, but plenty of people are in a better place financialy due to his teachings. Renting is not a waist of money. Signing up for a mortgage you can’t afford, and going into forclosure after 5 years of payments is a waist of money! You say most Americans can’t wait and save up to buy a house. Well Dave says wait until you are debt free, with a 6mnth emergency fund, and 20% down. Doesn’t sound like forever to me. That sounds a lot better than zero down with no savings, and then you or your spouse gets layed off. I’ve never heard Dave say sell a almost payed off car, he has said sell a car you can’t afford. Last note, waiting until all debt is gone to save for retirement will not leave you in poverty. Also as long as you are breathing, you have earning potential! People who think like you are why we have “bubbles”. You go and borrow until you’re blue in the face. Then when you loose your job, creditors don’t get paid, and the dominoe effect begins all over again. I like his saying ” be weird normal is broke” You sond like you are normal.

  28. I agree with you. I myself am in debt. If i put in 2.5% I get a 2.5% cash match plus a 5% employer discretionary deposit for participating in the retirement plan…so if I give up 2.5% I get 7.5% that is more that 100%! I can’t see giving that up!

  29. My boyfriend and I each have a lot of student loans (combined over $300k), that we know we’ll be paying on for quite a while. I look at those loans like DR looks at a second mortgage. If it’s over X amount, don’t put it in the snowball. If it’s under X amount, snowball it with the other debt. If we went HARD and combined our student loans with the rest of our debt and held off retirement, it would take, at our current income, 8.3 years to finish, and we’d be 39 with zero in retirement savings. At the rate we’re going, it’ll take 15 years or less (rather than 25), I’m okay with not being “gazelle” intense, because this way (contributing minimum to IRAs while putting rest toward debt) makes me sleep better at night, which I think genuinely goes to the core of DR’s philosophy.

  30. One of the reasons people get into debt is because they fail to plan for the future. All they are thinking about is “I want this right now!.”

    Part of a healthy debt elimination plan must include changing your focus from “now” to “now and later”, or it will never stick. I fear that the people telling you to not to save for retirement before you get out of debt are in danger of falling into this trap. (They want to be out of debt “right now”.)

    You will never regain this opportunity to have your employer match your contributions. Just like Roth and 401k limits, when the year’s up, there’s no going back. Einstein wasn’t kidding about the magic of compound interest. Yours is a wealth-building plan and I strongly encourage you to stick to it.

    A couple of general notes: Many companies still offer matching programs. Dropping the match makes headlines, keeping it doesn’t. Even without a match, the deferred taxes can make a substantial difference in your total retirement savings. Also, many companies have changed their matching to correspond with pay intervals. Once the pay period ends, so does the match opportunity. There is no catch-up as outlined by #9 Michelle. This works in your favor, putting the money in your account sooner. Check with your HR to get all the facts.

    Stay the course, Adam, the plan you’ve outlined is a good one!

  31. I hate these comparisons, it is the same every time from every blog, but I always feel compelled to read the rationalizations.
    The scenarios are always the same the person who chooses retirement ALWAYS gets an 8% return because thats what the market “typically does” and this person always stays employed until retirement. The person who is hyper-focused on debt, however, is always fired from their job, never has emergency funds and some natural catastrophe is set to swallow or wash away their home.

    The reality is that our retirement plans from our employers are dictated to us, we get to choose whatever they offer. In my case mine is chosen for me 2040 Lifecycle tiaa-cref (TCLOX) 3% gross pay (mandatory) 2.5% gross match. So, let me venture over to tiaas site to see their performance: …of the almost FIFTY retirement and IRAs they have listed FIVE have a “since-inception” above 8% and only EIGHTEEN even have a 10 year average. Maybe I chose poorly in choosing TIAA-CREF over Vanguard (our only other 403b option) but that leads to my next point about selective listening.

    The same people that continue to push the “8% conservative average” are the same ones that tell us we suck at choosing stocks (in fact they say even fund managers suck…) that indexes typically outperform…and then I go on to read how the S&P for 2000-2009 was a “lost decade”. I am “only” 34 years old and I have ALREADY gone through THREE market crashes, one per decade but to let most financial pundits tell it these things only occur to everyone else because “we” are smarter…

    Long story short, my wife and I have both stopped our supplemental contributions which combined comes to 650/month minus taxes going back into paying off debt. Our mandatory contributions are just that, mandatory. I should also note that we do have a defined benefit plan here as well (same employer, if that wasnt obvious).

  32. Stacie I really feel that Dave Ramsey is on your side, he’s not the consumate salesman, he’s a realist. His common sense approach is difficult to follow, living on less than you make, follow your budget, eliminate debt… these are easy to say but very hard to do. Paying off debt before contributing to retirement is hard to do also. You feel like you’re missing out on something because you are. So you work harder! (gazelle intense as if your very life depends on it) But when you again start contributing…you are debt free! You sleep better at night, you have a cushion between you and ‘Murphy’ sooner than you would have if you continue with the 401k contribution being taken out of your check.

    Why do people keep doing what they have been doing when it’s gotten them BROKE? Don’t take advice from broke people. Getting intense means sacrifice, operating on fear. Fear of what? Life!! Fear of losing a job, becoming disabled, an unexpected difficult pregnancy, any number of emergencies, etc… PAY OFF DEBT FIRST. Ramsey is a realist as I said above and he proves it by saying – “if you’re not really really going to get gazelle intense, then don’t stop your 401k contribution.” So it’s sort of like holding onto a security blanket where you don’t quite trust yourself (not you personally Stacie) but where a person doesn’t quite trust themself to stick with their plan of debt repayment and they have this backup thought that even if they don’t work things out between now and retirement they’ll be ok.

    All that said, personal finance is personal so everyone just do what makes you happy and lets you sleep at night. Good discussion, thought I’d throw in my 2cents worth!

  33. A few people have mentioned house/mortgage debt. If the choice is between retirement contributions and mortgage, then I’d go for the retirement contributions, at least up to the match. Even Ramsey suggests that you put 15% toward retirement Before you pay extra on the house mortgage. He says he’s seen too many people with a paid for house that don’t have any money in their later years.

    I was under the assumption (maybe a bad one) that the author’s debt was non-mortgage debt. I’d try to knock out the non-mortgage debt as fast as possible. But if the match can’t be “caught up” then it does make sense to put in up to the match each year, and just take a little longer to pay off the debt. But any other windfalls (tax refunds, bonuses, etc) throw at the debt snowball.

  34. I just asked this question to myself this past week and researched your site for answers! (You answered a similar question on 4/30/2008.) My decision based on the same question is more emotional than based on numbers. As a SAHM my husbands 401k is our only retirement vehicle at this time while we dig out of debt. I didn’t even bother to run the numbers because I’m so uncomfortable with not saving anything for retirement…The good news for me, THIS post validates my personal emotional decision.

  35. I agree with some others on this post in that alot of employers (mine included) don’t contribute to the 401k which makes a huge difference. While I can see the logic in continuing to contribute to a Roth the traditional 401k is becoming less and less attractive.

    Also the point of paying off debt is to have more free income to then enter the market with as well. You can say you will lose out on interest with a 401k investment but what about all the lost opportunities to invest in other valuable and potentially more lucrative investments because you are still in debt (and contributing to that 401k)?

  36. Your choice is pretty easy with the employer contribution. If it wasn’t there I would compare the interest rates of your investment versus the interest charged on your debt. If you can earn more on your money than paying down debt, investing is the better option.

  37. Cnick – I haven’t borrowed until I am blue in the face. I have a good history with money and I don’t understand why anybody would think that you can work as long as you are breathing. Please, have you not heard of any illness that incapacitates one? What if I were to be diagnosed with MS or have stroke. You must plan for the worst and hope for the best health wise. It is not a given that you will be healthy until your dying breath – unless of course you plan on getting hit by a bus. Oh, and it is waste not waist.

  38. I like to think of Dave Ramsey as a “one size fits all” solution. While the debt snowball works, if you do your homework – like you have done – you see that with discipline you can do a whole lot better.

    Just make sure you are paying more than your minimum payments, or else you might be giving a lot of that earned investment back in the form or interest to the credit card companies.

  39. Yikes! Stacie, there seems to be such anger in you toward Dave Ramsey and I’m not quite sure why. All I can tell you is that 3 yrs ago, I never heard of Dave Ramsey. A week before we were to sign on a home equity loan, I was serendipitously loaned his book, “Total Money Makeover”. My husband and I had never been huge spenders and we never bought into the bigger and better purchase mentality, but due to unforeseen circumstances, we ended up with unexpected credit card debt and bunches of school loans for our kids, plus cars, plus medical bills. After almost three years, we are at the point of deciding whether or not to pay off our mortgage. That’s pretty cool, you know? What DR did for us was give us a plan and a budget. No one had ever taught us how to create a budget and, despite not being big spenders, the budget we had wasn’t working for us. We’d been married 24 years at the time and I so wished someone had given us this guidance in the early years of our marriage. If DR doesn’t work for you, then move on, but please don’t discourage others from trying it. It may be the only starting point they have. In my experience in the last 3 yrs of helping lots and lots of people plan budgets, I would say MOST people don’t have a starting point and are so overwhelmed they can’t figure out how to begin. Dave Ramsey works perfectly for anyone who wants to get serious about getting rid of debt.

    I will also say, Stacie, that I don’t think you’ve researched Dave very well. If you had, you would know that he is an incredibly generous individual. He also RECOMMENDS people borrow his book rather than buy it. As we all know, just because someone has a product to sell doesn’t mean one has to buy it. That’s what got people into this mess to begin with.

    Last word–you lost any respect I might have for your opinion when you corrected someone’s spelling. Totally unnecessary and in-your-face action which says more about you than him.

  40. My parents always saved hard whatever their debt situation. They said their money works harder for them whiles it’s not in their creditors pockets!

  41. I have always felt that is important to save regardless of financial situation, as hard as it may seem!