Q. How should I balance paying off my student loans and contributing to a 401(k) plan?

I have over $200,000 in student loan debt. Some people have advised me to focus on paying off the loans, while others have advised me to keep contributing money into a 401(k) plan. How should I balance these two goals?


A. Ordinarily, I advise clients with any non-mortgage debt to focus on paying it off before investing for retirement. After all, for most of us, our greatest wealth building tool is our income, so it’s important to limit debts that siphon off chunks of our income each month.

That having been said, I feel your pain about the balance of your student loans.  Hopefully a large income comes with that large debt!  For folks in your situation, it’d recommend contributing to your 401k enough to capture the match, then focus on keeping your lifestyle in check and hammering away on the student loans. Avoiding lifestyle creep as your income increases will free more of your income for debt service.

I’d imagine that this debt will take a few years to clear, thus the reason it would be nice to have some funds invested in the 401k during the process.  Trying to do a larger 401k contribution prior to paying off the student loans will just drag the repayment process out even longer!  Fight the fight; finish the race; keep the faith! Stay the course and you can rid yourself of the debt and really begin to build wealth.

Best of luck and please reach out to me if you have any other questions!


John is a CPA and personal finance coach.  Email your questions to john@60minutefinance.com.

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If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.

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