Personal finance is filled with tough decisions. Prepay the mortgage or invest the money? Pay down high interest debt first or use a debt snowball to tackle the small balances? Roth IRA or traditional IRA?

Sara wrote recently with another dilemma I think many of us have faced: is it better to pay down debt or to begin investing for the future?

I’m 28. I work at a job with no retirement benefits and I want to open a Roth IRA.

My husband and I have about $9,000 in credit debt on a credit card which, unfortunately, has a high interest rate. (I plan on transferring the balance soon, but am investigating cards carefully.) We also have a small loan that we are paying off quickly.  

Your recent posts on the benefits of compound interest for retirement are making me question my current plan of “pay off all debts first, then invest”. I don’t want to lose out on the benefit of time any longer. What should I do? If I have $600 a month to throw at something, is it better to focus it all on the debt, or start on my Roth?

In this case, it might be helpful to reframe the question. Would you take out a loan at 12% or 15% or 18% interest in order to make an investment with an uncertain return (but which would most likely yield about 8%)? That’s basically the situation here. From a purely mathematical perspective, it doesn’t make much sense.

But there’s more than math involved in this decision. Building retirement savings can be a powerful motivator. Just getting in the habit of setting money aside is a valuable skill itself. Although there’s a cost involved, I wouldn’t say that it’s wrong to save for retirement while also repaying debt.

As always, do what works for you. If the debt bothers you, or if you think you might struggle to pay it off otherwise, then focus on the debt. But if you’re worried about the lack of retirement savings, then focus on that.

I did a little of both. While I was paying off my debt, I began to set aside a little cash every month to fund my retirement. It wasn’t a lot at first — just $100 — but as my expenses dropped and my income grew, I was able to contribute more. This allowed me to get into the habit of saving while also making progress on debt reduction. I know that I wasn’t making the most of either situation, but I didn’t care — it felt right for me. (And to be honest, I’d probably take the same approach again.)

What about you? What would you do in a situation like this? (Or what have you done in a situation like this?) Would you sacrifice a few hundred dollars in order to develop the saving habit? Or would you buckle down and get that debt paid off first?

This article is about Ask the Readers, Choices, Debt, Retirement