Should you stop contributing to retirement while paying off debt?

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Managing debt and preparing for retirement are two of the biggest financial challenges most people face, but tackling both at the same time isn't always realistic. With credit card interest rates still elevated, household debt at record highs and the cost of everyday essentials increasing and continuing to strain budgets, many people are now forced to make difficult decisions about where each dollar should go.

For those trying to make progress on both their debt and their retirement planning, the question of whether it's better to pause retirement savings until debt is under control often comes up. And, at first glance, the answer may seem obvious. Eliminating debt can reduce monthly expenses, lower the interest costs and free up cash flow, potentially putting you in a stronger financial position, but stepping away from retirement contributions can also come at a cost.

And that, in turn, begs the question of which approach is the right one to take when you're balancing both your plans for retirement savings and paying off debt. So, should you ever stop contributing to your retirement to get rid of your debt? That's what we'll examine below.

While every situation varies, stopping your retirement contributions isn't the best move in most cases. While aggressively paying off debt can make sense under certain circumstances, walking away from retirement savings altogether can create long-term costs that outweigh the short-term benefits.

That said, the right answer depends heavily on which debt you're carrying and what your employer is offering. If your employer still offers a 401(k) match, it's generally detrimental to walk away from it, even while paying down debt aggressively.

The average employer match is worth roughly 4% to 5% of your pay, and turning it down is effectively refusing a chunk of your compensation. For someone earning $75,000, that's thousands of dollars a year left on the table — money that would take years of investment growth to replace even if you eventually caught up on contributions.

Where the calculus shifts, though, is with high-rate, unsecured debt like credit cards. The average interest rate on credit card accounts currently carrying a balance sits above 21%, which is a figure few investment portfolios can reliably beat over time. Paying down a revolving balance that's accruing interest charges at that rate delivers a guaranteed "return" that a diversified 401(k) simply can't promise.

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