Should You Pay Off Debt or Save for Retirement First?
- It could make sense to focus on debt repayment first if you have high interest rates, or you're watching your money go to credit card bills every month.
- Saving for retirement may be a priority if you're closer to retirement age and haven't tucked away quite as much as you'd have liked.
- A budget can help you balance debt repayment with retirement savings so you can work toward both goals at the same time.
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Financial goals are a good thing. They motivate you to improve your money situation, whether you can take small or large steps. Sometimes, goals compete for your attention—and your cash.
For example, you want to get out of debt, but you also want to save for the future. Should you prioritize debt repayment or retirement savings?
If you put debt relief first, you could get rid of it faster and stop paying interest. On the other hand, you could miss out on the chance to earn interest when all of your money goes to debt instead of a retirement plan.
Let's look at both sides to help you find the best financial plan for you.
Should You Pay Off Debt or Save for Retirement? Factors to Consider
No rule says you have to choose debt over retirement or vice versa. It's up to you to decide which one is better for you. These factors could influence which way you lean.
Age. The sooner you start to save for retirement, the longer your money can grow. If you're closer to retirement, you may feel more pressure to save as much as possible.
Interest rates. High-interest debt is expensive, and the longer you let it hang around, the more it costs you. If rates drop, that could be a good time to refinance or consolidate debts to save on interest.
Stress/emotions. Your viewpoint about debt and saving also comes into play. You might feel driven to get rid of your debt ASAP if seeing your balances causes you stress. Likewise, you may feel anxious that you're not where you should be with your retirement goals.
If you're a numbers person, do the math. Calculate how long it'll take you to pay off your debts, and the interest you'll pay if you make only minimum payments. Then, do the same calculations, but plug in the highest amount you could afford to pay toward your debt if you pause retirement savings for now.
That'll tell you how much interest (and time) you could save by choosing debt payoff over retirement savings.
The last step is to compare the result to how much you could expect to earn over the same time period by saving for retirement instead.
When It Makes Sense to Pay Off Debt First
For some people, the cost of the debt is greater than the retirement earning potential in the same window of time. Sometimes it's better to tackle debt before you save for retirement. You might decide to do that if you:
Mostly owe unsecured debt like credit cards or personal loans
Have room in your budget to aggressively pay down debt
Want to minimize what you pay in interest.
A debt snowball or debt avalanche strategy could help you pay off debt faster. With the debt snowball, you pay off your debts from the lowest balance to the highest. The quick payoffs on the lowest balances help keep you motivated. You throw all the extra cash you have at the smallest debt, then once it's paid off, roll that amount over to the next smallest debt. You do that over and over until all the debt is gone.
The debt avalanche works the same way, with one change. You pay off debts from the highest interest rate to the lowest. That way, you save the most money on interest.
For both strategies, make minimum payments on all of your debts except the one that gets the extra cash.
When It Makes Sense to Save for Retirement
Retirement is years away, until suddenly, it isn't. If you wait to save, you could shortchange your goals. You might choose to save for retirement before you pay off all your debt if you:
Have less time to save and need to play catch-up
Only owe a small amount of debt
Mostly owe low-interest debt like a mortgage or a home equity line of credit (HELOC).
When you retire, you want as little money stress as possible. For some, that means zero debt but less in savings, and for others, it’s a little debt but enough money to live on.
Aside from retirement, think about other savings goals. A rainy-day fund could help you avoid having to use a loan or credit card to cover unexpected expenses. If you don't have emergency savings, you might put that goal at the top of your list, then think about debt and retirement.
How to Balance Debt and Retirement Savings
It’s entirely possible to pay down debt and save for retirement at the same time. You just need a good plan. Here are a few tips you can use to keep both goals in sight.
Get on a budget. A budget is your plan for how you spend the money you bring in each month. It's a way to take control of your money, since you decide how much to commit to debt vs. retirement savings.
Save automatically. Not everyone has a retirement plan at work, but if you do, use it. For example, if your job offers a 401(k) and your company matches contributions, take advantage. An employer match is basically free money that gets added to your nest egg. Even if you contribute the smallest amount allowed for your plan, that's still money you could save on autopilot.
Consider debt consolidation. If you can get a lower interest rate on a personal loan or HELOC than what you pay on your debts now, consolidation could help you pay off your debts faster. Get a few rate quotes to estimate how much you could save on interest.
Making the Best Decision for Your Future
Whether you pay down debt, save for retirement, or do a little of both, the choice is yours. At the end of the day, you have to feel good about the decisions you make with your money.
And it's okay to ask for help if you need it. Debt relief can help you find solutions to improve your financial situation. For example, debt settlement can help you pay off debt for less than what you owe and get out of debt faster.
Talk to a debt expert about your options if you're unsure how to balance your money goals. A credit counselor or Debt Consultant can lay out different paths and help you weigh the pros and cons. When you're ready to commit to a solution, you can do so with confidence.
Insights into debt relief demographics
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during November 2025. The data provides insights about key characteristics of debt relief seekers.
Credit utilization and debt relief
How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 31% and 50%, high is between 51% and 75%, very high is between 76% to 100%, and over-utilized over 100%). In November 2025, people seeking debt relief had an average of 75% credit utilization.
Here are some interesting numbers:
| Credit utilization bucket | Percent of debt relief seekers |
|---|---|
| Over utilized | 30% |
| Very high | 32% |
| High | 19% |
| Medium | 10% |
| Low | 9% |
The statistics refer to people who had a credit card balance greater than $0.
You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.
Credit card debt - average debt by selected states.
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) the average credit card debt for those with a balance was $6,021. The percentage of families with credit card debt was 45%. (Note: It used 2022 data).
Unsurprisingly, the level of credit card debt among those seeking debt relief was much higher. According to November 2025 data, 88% of the debt relief seekers had a credit card balance. The average credit card balance was $15,182.
Here's a quick look at the top five states based on average credit card balance.
| State | Average credit card balance | Average # of open credit card tradelines | Average credit limit | Average Credit Utilization |
|---|---|---|---|---|
| Alaska | $18,833 | 7 | $24,102 | 80% |
| South Dakota | $15,343 | 9 | $28,791 | 80% |
| District of Columbia | $13,535 | 9 | $27,261 | 79% |
| Alabama | $13,087 | 8 | $25,731 | 79% |
| Michigan | $13,909 | 8 | $26,156 | 78% |
The statistics are based on all debt relief seekers with a credit card balance over $0.
Are you starting to navigate your finances? Or planning for your retirement? These insights can help you make informed choices. They can help you work toward financial stability and security.
Support for a Brighter Future
No matter your age, FICO score, or debt level, seeking debt relief can provide the support you need. Take control of your financial future by taking the first step today.
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Author Information
Written by
Rebecca Lake
Rebecca Lake has over a decade of experience as a money expert, researching and writing hundreds of articles on retirement, investing, budgeting, banking, loans, saving money, and more. She has been published in over 20 online finance publications, including SoFi, Forbes, Chime, CreditCards.com, Investopedia, SmartAsset, Nerdwallet, Credit Sesame, LendingTree, and more.
Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.