Podcast Summary: Optimal Finance Daily, Episode 3389

Title: Should You Save More For Retirement Or Pay Off Debt First?
Original Post By: Mark Dennis with Financial Finesse
Host: Diania Merriam
Date: December 16, 2025

Episode Overview

In this episode, Diania Merriam explores one of the most debated questions in personal finance: Should you prioritize saving for retirement or paying off debt? Drawing from a guest post by Mark Dennis of Financial Finesse, Diania delves into both the mathematical logic and the behavioral psychology behind each option. The episode provides clear actionable advice, blending expert opinions with real-life anecdotes on forming and sustaining a balanced financial plan.

Key Discussion Points & Insights

1. The Dilemma: Extra Money Available—What Now?

• Context: Many find themselves with a budget surplus and must decide—spend, save, or pay debt?
• Key Insight: Even financial experts disagree on the "right" approach. Some advocate for paying off all debt before saving for retirement, while others recommend contributing at least enough to obtain employer retirement plan matches.

2. What Do Experts Say? (01:55–03:07)

• Dave Ramsey’s Perspective:
  • “Dave Ramsey recommends not even bothering with retirement savings at all until you first pay off all consumer and student loan debt. But it's okay to carry a low interest mortgage once you become debt free. He then suggests redirecting 15% or more of your income towards retirement savings.” (02:07)
• Prevailing Opinion:
  • Most experts counsel contributing enough to retirement to obtain employer matches, building an emergency fund, and then attacking debts—either by interest rate (highest first) or by balance (smallest first).

3. The Mathematical Approach (03:16–05:00)

• Dual-Pronged Recommendation:
  • For Retirement Savings:
    • “Contribute at least up to the maximum matched percentage in your employer’s retirement plan. This will capture an instant and guaranteed return on your investment...” (03:30)
  • For Debt Payoff:
    • “Pay the minimum required monthly amount on all debts... all available additional dollars from your budget after retirement plan and emergency fund contributions goes to the highest interest rate debt until it's fully paid. We call this the debt Blaster approach and it is by far the quickest way to eliminate your debt.” (04:05)
• Caveat: May not be emotionally satisfying, risking motivation and consistency.

4. The Psychological Approach (05:01–06:30)

• Debt Repayment:
  • Smaller, quicker wins (paying off small balances first) can foster motivation and help individuals stick to debt repayment plans:
    • “Paying off the smaller balances instead, regardless of the interest rates being charged, seems to provide greater motivation towards sticking with a debt repayment strategy.” (05:13)
• Retirement Saving:
  • Retirement seems abstract, so people tend to procrastinate. Lacking urgency and misunderstanding compound growth can be barriers.
  • Setting concrete monthly retirement savings targets helps overcome this challenge.

5. Overcoming Psychological Barriers (06:31–07:15)

• Actionable Advice:
  • “... make retirement more tangible by giving ourselves a monthly savings target.” (06:40)
  • If you’re saving enough to replace about 80% of your pre-retirement income, you're likely on track. Retirement calculators can help identify savings gaps.

6. The Blended Best-of-Both Approach (07:16–08:19)

• Do Both:
  • “Number one, contribute to your employer’s retirement plan at least up to the maximum amount they will match. Free money is free money and nothing beats a guaranteed return...”
  • “And number two, go for the small, quick win and pay off your smallest credit card and consumer loan balances first. That's one less bill to pay each month, and having one less bill just feels good...”
• **Prioritize debts with similar balances by interest rate next.

7. Personal Anecdote from the Host (10:02–11:13)

• Diania Merriam’s Experience:
  • Based on her own journey getting out of $30k in debt:
    • “When I was getting out of 30 grand of debt when I was 28 years old, I stopped contributing to my 401k. In retrospect, this was a less than optimal approach because I lost out on my employer match. But money management is as much about psychology as it is about math. I got out of that 30 grand of debt in less than a year because taking those drastic measures motivated me.” (10:12)
• Advice:
  • If she were to do it over again, she’d avoid stopping 401k contributions, especially if paying off debt would be a long process.

8. The Litmus Test: Interest Rate Urgency (11:18–11:35)

• Key Principle:
  • “If you have credit card debt, you gotta have a sense of urgency about it. After you contribute enough to get your employer match on any retirement investments, throw as much money as you can at paying off this high interest debt. Focusing on investing while you have credit card debt is like painting your living room while your garage is on fire. Go deal with the fire first.” (11:23)

Notable Quotes & Memorable Moments

• On Having a Plan:
  • “What we all agree on, however, is the importance of having and staying with a definite plan to pay off expensive consumer debt in a timely fashion.” (02:02)
• On Motivation:
  • “With modest apologies to all of my math teachers, math just never felt quite that good. Use those good feelings of accomplishment to help motivate you to stay on track and hammer away at the next debt…” (07:58)
• On Urgent High-Interest Debt:
  • “Focusing on investing while you have credit card debt is like painting your living room while your garage is on fire. Go deal with the fire first.” (11:30; Diania Merriam)

Important Segment Timestamps

• 01:55–03:07 — Financial experts’ opinions and strategies
• 03:16–05:00 — The mathematical approach and “debt blaster”
• 05:01–06:30 — Psychological approach to debt repayment and retirement saving
• 07:16–08:19 — The "best of both worlds" approach
• 10:02–11:13 — Diania’s personal debt payoff story and reflections
• 11:18–11:35 — The urgency of high-interest debt and memorable analogy

Tone & Style

The episode balances authoritative guidance with relatable storytelling, leveraging both practical math and motivational psychology. Diania’s narration is approachable, conversational, and encouraging, emphasizing that personal finance is ultimately personal—doing something is better than doing nothing.

Final Takeaway

There’s no one-size-fits-all answer. The most practical route is to secure any available employer matches on retirement contributions while aggressively targeting high-interest debts for payoff—blending smart mathematics with psychological motivators. Above all, pick a plan you’ll stick to and stay consistent. As Diania affirms, “…personal finance is personal and even if you're not making the most optimal choice, it's still better than not trying at all.” (11:08)