How To Pay Down Debt And Save For Retirement
Money|October 2018
How To Pay Down Debt And Save For Retirement

A four-step guide to tackle what you owe without sacrificing your future. 

Elizabeth O’Brien

DON’T WAIT until you’ve retired your debt to save for retirement. The challenge, experts say, is to pay down what you owe and still sock away some savings at the same time.

“It’s not an either/or,” says Greg McBride, chief financial analyst for

But what’s the best way to do that without driving yourself and your bank accounts crazy?

If you feel like this is too much, you’re not alone. One-third of Americans view debt as a barrier to reaching their financial goals, according to research this spring from Principal Financial Group. But if you allow debt to stand in the way of building your nest egg, you’ll have missed out on the compound growth of whatever you can sock away.

When it comes to debt repayment and saving for retirement at the same time, these principles generally apply—no matter your life stage. (But millennials just starting out can take steps to avoid excessive debt in the first place.)

Here’s an action plan for any age:



Start with a clear-eyed assessment of what you owe and how much your debt is costing you in interest payments. Tally up your debts and rank them in order, from the highest interest rate to the lowest. How much debt is too much? Nonmortgage debt that exceeds 20% of your take-home pay is generally a cause for concern, says Joleen Workman, vice president of retirement and income solutions at Principal Financial Group.

Next, look for areas in your budget to cut. For example, maybe you don’t really need that $200-a-month cable package or an upgrade on your car. “Your ability to pay off debt relates to the standard of living you’re adopting,” says Ron Rhoades, an assistant professor of finance at Western Kentucky University.


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October 2018