Pay off debt or Save?

May 06, 2024

A question that I see people wrestle with often is how to use their spare cash – save for retirement or pay down your debt?  Like most topics, the precise answer is highly dependent on the individual and their circumstances, however there are a few things that everyone can consider when making this decision. 

First, what type of debt do you have?  I am comfortable with people holding certain types of manageable, low fixed interest rate debt.  The most common of these is a home mortgage.  I would almost never recommend that someone pay down their mortgage before saving for retirement for a long list of reasons.  Depending on your financial situation, there can sometimes be tax benefits to paying interest on a mortgage.  However, higher interest debt such as credit card debt should ideally be paid down as quickly as possible.  This debt not only typically carries very high interest rates, but carrying that debt does not have any benefit to the consumer and it also tends to hurt your credit rating.  A low credit rating makes it even more difficult to secure a future loan for an automobile, business loan or anything else that you might need.  I would almost always recommend making it a high priority to pay down credit card debt.  To keep it very high level, if the interest rate that you are paying on your debt is higher than you could reasonably expect to earn on your money with a sound investment strategy, you might consider paying down the debt first. 

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or advisor for specific information pertaining to your situation.