I currently am $31,000 in debt from school and a personal loan and I am looking to pay it off. I just started a new job; I am 21 years old, fresh out of college. I am making around 50K USD.

I have been reading Dave Ramsey's Complete Guide to Money and he says to get out of debt ASAP and I should not contribute to my retirement account until I am out of debt.

Is he right?

Update 2021-10-12:

I ended up paying all my debt off. 2 years ago. Went hard paying everything off right away. Got a few raises and took a new job. Thanks all for the responses.

  • 2
    Does your employer offer a 401k match?
    – Hart CO
    Commented Jun 7, 2018 at 0:36
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    How fiscally responsible are you? What's the APR of your debt?
    – Kevin
    Commented Jun 7, 2018 at 0:36
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    @HartCO not until I reach a year of employment with them so another 8 months Commented Jun 7, 2018 at 0:56
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    @Kevin I would say very, my APR's are all averaging 4% Commented Jun 7, 2018 at 0:57
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    @BradySprenger That sounds unusual - Are you sure that you don't get matching at all until you've been employed for a year? Or could it be that the company will match, but the matching money just doesn't vest for a year?
    – Beanluc
    Commented Jun 7, 2018 at 21:40

3 Answers 3


Understand that the rationale for pausing retirement is not financial, it is behavioral. His tactics are geared toward intense focus on a single goal. Yes you give up a match, and yes you might be better off in the long run, but his strategy is to focus all energy and money on one "baby step" at a time, rather than trying to build a 6 month emergency fund AND pay off debt AND save for retirement AND save for kids college. A phrase he uses often (which I agree with) is when you try to do 6 things at once you don't do any of them with excellence. Pausing retirement could be an incentive to getting out of debt as soon as possible, with the knowledge that the match is being left on the table. Again, more a behavioral strategy than a financial one.

His strategy is that debt is a massive hindrance to wealth building. The sooner you get out of debt, the sooner those payments can be redirected to income generating activities rather than to debt payments.

Others will disagree, claiming that they can earn more on average in investments than they pay on debt. That might work for banks and companies that use debt to grow their business, but that doesn't work for most consumers, who pay interest not to build assets but to satisfy personal desires without taking the time to save up money for them (play now, pay later), and who ignore the risks of market losses or income losses.

So there's not a consensus, mostly because the math is easy to refute (another catchphrase of his is if people were good at math they wouldn't go into debt in the first place), but as a pragmatist I have a very hard time refuting the results he gets. I personally have followed the plan (not as intensely as he would like, but I have stopped retirement temporarily to hasten savings goals), and can attest to the results.

At 21, you have LOTS of time to save for retirement, and unless you plan to contribute the maximum individual amount ($18k+) per year from day one, you can always make up for some lost time by contributing more (even if it means not all of it is matched).

With a 50k income it may take a few years to pay down the debt (more or less, depending on how much "living" you're willing to sacrifice now for wealth later). If you forego 15% retirement savings, that's $15K in retirement and match that you're missing out on. However, you have 40 years to make up for that.

  • 5
    Perfect answer. I can second D's success. I started the DR program in July of 2013 at the age of 47. Each individual year since then I built more wealth than my entire working history from age 16 to 46. If only I did the program at your age.
    – Pete B.
    Commented Jun 7, 2018 at 11:12
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    My only disagreement would be, if the employer offers a 401(k) match, that unless one literally needs every excess dollar to pay off the debts, leaving matching funds on the table is equal to leaving free money on the table. Most typical matches are only a few% of the total salary anyway and I think that unless circumstances are most dire, most debt repayment plans can account for saving 2% tax-free + company matched. Commented Jun 7, 2018 at 14:20
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    @R.Hamilton Mathematically you're not wrong, but it's "free money" that can't be used for 40 years. Again, the strategy Dave employs involves intense focus on a singular problem (paying off debt), and dealing with the next problem (saving for retirement) with equal intensity. Many of the people he counsels muddle through, not doing either one well, and get nowhere (the "free" money is destroyed by 40 years of debt payments). I agree that leaving the match on the table is hard, but for me it encouraged me to get out of debt faster to start get that match again sooner.
    – D Stanley
    Commented Jun 7, 2018 at 14:24
  • The key thing is to think about the pros and cons of both. While you may not be able to do 6 things well, if you can manage two, then get the employer match to retirement AND pay off debt at the same time. Maybe even start small on the former ramping up as you get debt paid off (mine offers a 1:1 match to a certain point, then matches at less good ratio after). If I were in OPs situation I might put in the max where my employer would match 1:1 until I got the debt done.
    – aslum
    Commented Jun 7, 2018 at 16:51
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    OP mentioned that his APR, on average, was only 4%. It's not like he's got 26% CC debt. Assuming a better return from a 401k, wouldn't he be better off to contribute to that, and work on the debt over time? Commented Jun 7, 2018 at 17:55

If the interest on your debts is only 4%, then you should at minimum contribute enough to get your company's 401(k) match.

Let's do the math here. A common company match scheme is something like "match 50% of your contributions, up to 8% of your salary". In that case, the money you invest is getting an immediate 50% return, plus whatever returns the investments earn, plus the fact that all of this is tax deferred. That's way more than the 4% return you would get by paying down the loans, even if you get only mediocre performance out of your investments. Therefore, you're better off investing. The only reason you should forgo that matching is if you absolutely can't make your minimum payments any other way.

I would argue that you should go further than that and invest as much as you can into your retirement accounts (subject to still being able to make your minimum payments, of course, and you should establish some emergency savings too). However, the case for this isn't quite the slam dunk that investing up to the matching limit is. The additional investment won't be getting matched, so you will only be getting the investment returns, plus the tax deferment. However, in my experience, it's not at all hard to get investment returns that beat the 4% that you're paying in interest. My own 10 year annualized returns are more than twice that, and that's not doing anything special, just investing in plain old low-cost index funds. With those returns, you'll have more money by the end of your career if you invest than if you pay off the loans first and only start investing afterward.

Finally, I urge you to ignore the "debt snowball" and any other such talk. The logic behind these tactics is that reaching arbitrary milestones like "this or that loan account is closed out" provides a psychological lift that is somehow necessary for mustering the self-discipline to get out of debt. In my opinion, it's a bunch of snake oil. Getting out of debt is a numbers game. Sit down and run the numbers, figure out what you can afford to put toward paying debt, paying bills, saving, and so on. That's your budget, and if you stick to it, you'll do fine. If you need an emotional lift from time to time, look back at how you did on your budget each month, and give yourself a pat on the back for each category where you managed to come in under budget. It's no less effective than Ramsey's techniques, and it doesn't cost you money in the long run. Remember, this is a marathon, not a sprint. The goal of this sort of planning is to maximize your long-term financial well-being, not to score quick wins that leave you worse off in the long run.

Good luck with your career, and your financial planning. You're asking the right questions, and you've got the right priorities. That alone is well more than half the battle.

  • 2
    It's a darn shame that Ramsey fans (I presume) keep downvoting this answer. Suggesting that someone forgo a company 401(k) match in order to make extra payments on a low-interest loan is TERRIBLE advice that harms anyone who follows it. People earnestly trying to plan and prepare for their future deserve better.
    – Nobody
    Commented Jun 12, 2018 at 12:12
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    It was downvoted once.
    – RonJohn
    Commented Aug 3, 2018 at 17:53
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    RPL and RonJohn I just upvoted. The David has some good advice, but personal finance is, er, personal. One size does not fit all. The David also speaks in absolutes, “there is no responsible use of credit cards.” Really? I signed up for a 2% cash back card soon after my daughter was born. The reward account (a 529) will pay for 3 semesters of college. Over $40K and another year to go. Snake oil is right. Commented Aug 3, 2018 at 18:16
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    I don't agree with a lot of Dave's advice but I wouldn't go as far as calling it snake-oil. Different things work for different people.
    – jcm
    Commented Aug 4, 2018 at 3:11
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    One thing I'd disagree with here is investing everything in retirement accounts. I would (and did) invest quite a bit outside of those. The advantage is that having a good pile of money you can easily access without penalty gives you a lot of freedom, even if you never actually spend much of it. Then there's the problem of reaching conventional retirement age with a substantial sum in retirement accounts, but absolutely no interest in retiring.
    – jamesqf
    Commented Aug 5, 2018 at 17:30

Before you can think about getting out of debt, you must know where all your money goes: fast food, restaurants, mixed drinks at bars, movies every Friday and Saturday night, etc.

You need a budget. Not a strict, highly-detailed No Fun budget, but a reasonable one with some enjoyment. After all, you're 21!!

Use that to build a $1K baby e-fund, and then hit your debt hard for the next 7 months. After that you can start contributing to retirement: reduce the debt repayment only to contribute the minimum necessary level for matching funds.

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