Building Retirement Funds or Paying Off Debt: What's More Important?

Finance Coach Mary Hunt, author of Can I Pay My Credit Card Bill with a Credit Card? And Other Financial Questions We're Too Embarrassed to Ask!, weighs in.

Q: I am thinking about redirecting my 401(k) contributions toward my debt to speed the repayment process. Is this a wise move even though I would be missing my employer's match? I am determined to get this debt out of my life forever.

Finance Coach Mary Hunt, author of Can I Pay My Credit Card Bill with a Credit Card? And Other Financial Questions We're Too Embarrassed to Ask!, weighs in on this multifaceted subject.

A: Boy, this is a tough one. On the one hand it seems ridiculous to leave "free money" on the table (your employer match). But I agree that until you are free of your unsecured debt, you have no business putting precious income at risk in a retirement fund like your 401(k).

A reasonable compromise would be for you to reduce your contribution to be just enough to get the match, and to direct the balance of your current monthly contribution to boost your RDRP.

No matter which way you choose to go, do not cash in or take any money out of your 401(k) account. The penalties for doing so are just too great. Leave it alone to grow during this season of "redirection." Knowing it is there working for you will help you keep a positive attitude.

I wish you well in making the best decision for you. And if you decide to stop all contributions for a season, I would certainly understand. The drive to finally get out of debt can be very strong once you've had a taste of how great it feels to be moving in that direction.

Excerpted from Can I Pay My Credit Card Bill with a Credit Card? And Other Financial Questions We're Too Embarrassed to Ask! (DPL Press, Inc., 2009)

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