Should you save for retirement while getting out of debt?

To contribute or not to contribute?

That is the question when trying to pay off debt. This is a question we battled with when I started working again. The financial experts are all over the place with this question. Some folks are adamant that you should not contribute while you are trying to get out of debt. Others say you should. So what should you do? Let me take you through my thought process.

Most people think about time. How much time can I afford to not make retirement contributions? For me, it wasn’t so much about time, since I knew how long it would take to pay off our debt as long as we stayed intense. For me, it was about other benefits and our ability to keep traction on our plan.

Do you have time?

Can you pay your bills? 

You should never invest if you can’t pay your bills. It doesn’t make sense to borrow money to pay your monthly bills so you can put money into your retirement plan. Too often I see people do this, just to end up taking money out later to pay off debt. If you take money out of a retirement plan, you will pay a 10% penalty plus your tax rate. Now you are further in the hole than you were before!

Does your company match 100%?

If you work for a company that matches your contributions, you are missing out on part of your compensation package by not contributing to your retirement plan. When a company determines how much to pay you, the company factors in the maximum cost of benefits (health insurance, retirement, life insurance, etc). Any benefits you do not take advantage of are savings to the company. I hate leaving that money on the table.

I have been very fortunate to work in an industry with incredible retirement matches. Over the last few years, if I put in $1, the organization puts in $1.60 or $1.80, up to 5% of my pay. That’s some serious money to leave on the table. I’m making 160% to 180% on my money instantly.

Are you making good progress paying off your debt?

If you are having trouble getting traction on your debt payment plan, would stopping your retirement contributions help you make some traction?

If you are putting $100 a month in your retirement plan, you would probably have an additional $85-$90 per month after taxes to put toward your debt. That may be the extra boost you need to start getting some traction, especially if you have a lot of smaller debts.

Making the decision to stop your retirement contributions means you need to get a fire under your ass. Generate some extra income and slash your expenses so you can get some breathing room and get that debt paid down. This should not be a 10 year plan. This should be a 2-3 year plan, depending on how much debt you have. You need to get the mess cleaned up so you can start saving for your retirement and living your dreams. No cable. No vacations. If you are willing to sacrifice your future, you need to sacrifice right now.

We have slashed our expenses and both do side work to generate extra income. Each month, 50% – 60% of our take home pay goes to debt repayment. The contributions that I make to my retirement plan (after taxes) is 1% of our take home pay. By making that retirement contribution, I decrease our debt payoff by $116 per month. That also means that I have $455 per month going into my retirement plan (including the match). The $116 is not going to move our debt free date but the $455 will move up my retirement date.

Is there a correct answer for everyone?

That’s the easiest question of all because the answer is no. Everyone’s situation is different. You need to look at your situation and determine what is right for you. If you need help making this decision, leave a comment or send me an email at

Are you contributing to retirement while getting out of debt? Does your employer match your contributions? 


Solving your income issue

So it’s the beginning of September and you’ve done your budget and there is just not enough money to pay everything. You’ve taken my advice and cut back everything you can. You’ve called all of your utility companies to see if you can get a better deal. You’re eating mac and cheese and ramen noodles. There are no more things to cut. Now, you have two options: cut your payments or increase you income. Let’s talk about the income issue first.

If you only have an income issue because of your debt (credit cards, student loan payments, medical bills), you need to find a short term way to make more money. It’s time to swallow your pride and consider getting a part-time job. If you work part-time, it may be time to get a second part-time job or try to find a full-time job.

I know what you’re thinking. Kristin, the economy is terrible. How am I going to find another job? I see people who do it all the time. You may need to get a job waiting tables or delivering pizza. You can try to get a job in retail, although something that pays you tips will make you a lot more money.

If you are having trouble getting a job, create your own job. As a college student or teacher, you could tutor kids. Put some signs up at your local grocery stores. If you have a lawn mower, you can start mowing lawns in your neighborhood on nights and weekends. Have a skill? See if you can find a library or adult education program where you can teach classes. Have a Master’s Degree? Work as an adjunct professor at a community college.

There are a lot of options out there. Be creative. You won’t have to do this forever. Maybe you’ll even develop a side business that could turn into a full-time job someday. Do something you feel passionate about. If you’re having trouble with that, consider picking up a copy of 48 Days to the Work You Love. Now is a great time to figure out what you are good at and start marketing yourself in that direction.

Do you have an income issue or a spending issue?

When coming up with your financial plan, remember there are two sides of the equation: your income and your expenses. We need to look at both of these.

The first thing you need to do is look at your spending.You will have a very difficult time getting ahead if you don’t know where your money goes. Don’t let your money control you; you need to control it.

Now is a good time to look at your spending since we are at the end of August and we have an entire recent month worth of spending to look at. How did you spend money this month?  Checking account? Credit cards? Taking cash out of savings? If you do all of your spending with a debit card and/or credit card, this will be a lot easier to do. If you spend cash, then you’ll need to start this process tomorrow. If using cash, you’ll need to get a small notebook or keep your cash in an envelope and write down everything you spend money on as you spend it for a month. We need to know where the money goes. After you do that for a month, your assignment looks a lot like the card spenders.

Pull your credit card and bank statements for August. You need all your spending from August 1 to August 31. Look at each transaction and put it into a category:

Rent/First Mortgage
Second Mortgage
Housing Repairs/Condo Fees

Cell Phone

Eating Out

Car Payment 1
Car Payment 2
Auto Repairs
Car Insurance


Health Insurance
Medical Copays

Life Insurance
Disability Insurance
Child Care



Debt (List each debt separately)

Other (See if there are any categories that pop out at you within this “Other” umbrella)

Once you get all this down on paper, look at what your spending. Is there fat in your spending? Are you spending more than 15% of your take home income on food? Do you spend a lot on recreation? Take a look at all your spending. What jumps out at you?

If you are already on a program, what were the items that jumped out at you when you first looked at your spending? For me, I think it was how much we spent eating out. We never spent a lot on groceries but we had times when we’d eat out three days in a row. Cutting that out was huge. It probably saves us $150 a month.

Tomorrow, the income issue.

Budgeting 101 – Part I

Yes, I said I hate budgeting. I hate the day-to-day tracking and month-to-month reconciling of a budget, but I still need to know where my income and expenses are. I need to know how much I have to spend on groceries and entertainment. I need to make sure I’m going to have enough money to pay my heating bills in the winter and my electric bill in the summer. I’m going to share with you how I do my budget and how I’ve shown my clients how to put a basic budget together. I go back to this budget every four to six months or if I feel things are getting a bit tight or if we have major changes to our budget.