How to Pay Down Debt While Saving for Retirement

A guide to help you solve the paying-versus-saving conundrum.

A guide to help you solve the paying-versus-saving conundrum
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[Read: What Are Your Real Retirement Costs?]

Car loans are a variable debt, according to Smith and Miller. If the loan has a low-interest rate or other incentive, and you need a car for everyday purposes, it could be factored in as a monthly budget item and not considered high-priority "bad" debt. However, "Remember there is not an absolute difference with debt, as it depends on the loan and where that loan comes from," Miller says.

Weigh the options. So how much of your discretionary income should go toward paying down debt? Should you split it evenly between paying debt and saving for retirement? "It's important to emphasize that it has to be tailored to your situation, but you can arrive at a number by looking at things step by step," Miller says.

Traditional individual retirement accounts and employer-sponsored 401(k) retirement plans can both be quality tax-deductible savings options, but you need to weigh the plan benefits with the costs of your debt. "For example, a 20 percent interest rate on a credit card that is not at all deductible is a really bad thing to have," Smith says. "On the other hand, earning a 7 percent rate of interest on an IRA, in a taxed-deferred account – meaning the after-tax return is even higher – is very valuable." In that situation, your best option may be to resist investing in an IRA plan, and pay off the expensive debt first.

However, depending on the amount of the credit card debt, you could potentially save and pay down debt at the same time. "You could set up an aggressive payment plan, and don't forgo contributing to the IRA. You instead forgo doing things like buying Starbucks coffee for a while, or some of the other things that you do in your life that are really extra," Smith says.

[See: 12 Ways to Increase Your Social Security Payments.]

If you were to pick one savings fund to contribute to while working to pay off debt, Smith suggests taking advantage of a retirement plan offered by your employer, like a 401(k) with company matching benefits. "Put just enough into the company 401(k) to get the full match, and then use any leftover money to pay off debt," Smith says. "Check with your human resources department, and find out what benefits your company offers."

A common 401(k) employer matching contribution is 50 cents for each dollar the employee contributes, up to 6 percent of their pay. "That generosity should be taken advantage of to help you reach your retirement goals," Miller says.

Utilize available resources. Similar to how a personal trainer can keep your fitness goals on target, a financial planner can help make sure you are financially on track, Smith says. Organizations such as the Certified Financial Planner Board of Standards and the Financial Planning Association can be good tools for those looking to develop a plan to pay down debt. "Often people don't reach out to get help until there is a crisis," Castanon says. "Set up an action plan early on so [you] can set goals and start working towards [them]. And never think 'I'm too you young, or too old, to save for retirement.'"