3389: Should You Save More For Retirement Or Pay Off Debt First? by Mark Dennis with Financial Finesse

Summary

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

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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.

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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)

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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)

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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

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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.

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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)

Transcript

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This is Optimal Finance Daily should you save more for retirement or pay off debt first? By Mark Dennis with financialfiness.com this is a common question posed to financial planners and advisors. Should I save more for retirement or pay off debt first? Even well known personal finance pundits disagree on this one. Mathematically, this is a fairly simple question to answer behaviorally, however, actually taking action and sticking with the plan approaching this question can be much more difficult. Let's assume you sat down recently and reviewed your monthly budget. During that exercise, you were happy to discover that you have a couple hundred extra dollars available each month. You now face the happy dilemma of deciding what to do with those dollars. Your basic options are simple, of course. You could spend it, you could save it, or you could pay off some debt. What the experts say As I mentioned, even seasoned financial pros disagree as to the exact approach to take when deciding between paying debt or contributing more to retirement savings. 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. For example, personal finance radio personality 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 rate mortgage once you become debt free. He then suggests redirecting 15% or more of your income towards retirement savings. He's a bit of a lone ranger in that opinion, though. Almost every other personal finance expert recommends more of a balanced approach such contributing to your employer's retirement plan at least up to the percentage they will match, regularly setting aside cash into an emergency fund every pay period and paying off consumer and student loans either in descending order according to interest rate or ascending order according to balance that is Pay off the small balances first. Which is better? We could spend hours standing around the water cooler debating the pros and cons of each approach, and financial planners often do. The important part is to pick a strategy, any strategy, and then stick with it. Briefly though, let's consider the upside and downside to these strategies, including some practical armchair psychology that might help you determine which method best fits your personal preferences. The Mathematical Approach if the purity and logic of a straight mathematical approach appeals to you, then the solution to the debt versus Savings dilemma is probably fairly clear. Do both. Here's 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 and you won't feel as if you're missing out on a benefit by not participating. If you prefer a side by side comparison, calcxml provides an online calculator to help you compare the after tax return on investing to with the after tax cost of Debt Debt Payoff with respect to your debt payments, the strategy is also quite straightforward. Pay the minimum required monthly amount on all debts to keep them current. Of course, 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. However, it may not be the most satisfying from an emotional or psychological perspective. Consequently, there's the risk that you may not stick with it long enough to fully get yourself out of debt. If this could be a concern for you, listen on the Psychological Approach to Debt According to research, the purely mathematical approach to paying off debt may not be the best approach for everyone. 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. Mathematics aside, what you do or don't do ultimately determines your success or failure. Intuitively, most of us understand that breaking up a large task into smaller bites makes it easier to accomplish. The same is true when it comes to getting out of debt. Maybe Dave Ramsey is onto something with this approach. Consider going for the short term win and the relatively quick sense of satisfaction to fuel your motivation towards paying off all your consumer debt The Psychological Approach to Retirement the psychology behind successfully saving for retirement is a bit more complex. Unless you're far along in your career, retirement can seem far away and abstract. This adds more urgency to immediate needs and problems like getting out of debt, paying for the kids, college, or buying a house, all goals with more immediate gratification tied to them. Furthermore, people often struggle to fully understand how compound growth works, which leads us to underestimate how much our savings could potentially grow. Perhaps worse, our difficulty with compounding leads us to also underestimate the cost of waiting, making that option appear much too attractive and fostering procrastination. Overcoming the Barriers an effective way to combat these psychological savings barriers is to make retirement more tangible by giving ourselves a monthly savings target. Generally speaking, if you're saving enough money from each paycheck to replace approximately 80% of your pre retirement income once you retire, you're very likely on track with your retirement savings efforts. Use the Retirement Estimator calculator to see how your current savings measure up. If there's a substantial gap, the calculator can help you see how much additional you need to contribute to your retirement plan at work, or to an individual retirement account. Or perhaps both. The Best Approach what motivates you? Now that you've examined different perspectives of this debt versus investing issue, what do you do with this knowledge? It's not what we know that ultimately matters, it's what we choose to do. Consider taking a best of the best approach. 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 on your investment. 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. 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 on your list until you kill that one too. If you have two debts with similar balances, then focus on pouring additional dollars into the debt with the highest interest rate. Take advantage of both mathematics and psychology to help dig your way out of debt and land firmly on the path towards financial independence. You just listened to the post titled should you'd save more for retirement or pay off debt first? By Mark Dennis with financialfiness.com oh, the.

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Visit 1-800-contacts.com today to save on your first order. 1-800-contacts. I like to say that wealth is built in the gap between your income and your expenses. When you're monitoring your inflows and outflows closely, you have awareness of your gap and you can work towards growing the gap. This article is focused on how you deploy the gap between cash, savings or an emergency fund and investing and paying off 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. I wouldn't recommend this approach to others, and if I could do it over again, or if it was going to take me longer to get out of credit card debt, I wouldn't stop contributing to my 401k. But I share this with you because personal finance is personal and even if you're not making the most optimal choice, it's still better than not trying at all. When it comes to deciding if you'll pay down debt or invest, the interest rate on your debt is a huge consideration. 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. So that concludes another installment of Optimal Finance Daily. Thanks always for joining. Have a great rest of your day, and I look forward to seeing you again tomorrow, where your optimal life awaits.