This is one of the most common dilemmas in personal finance, and the answer genuinely depends on whether your employer offers a match.
The Employer Match Rule
If your employer offers a 401(k) match, contribute enough to get the full match before making extra debt payments. A 50% or 100% employer match is an immediate 50-100% return — no investment, no strategy, and certainly no debt payoff plan produces a guaranteed return of that magnitude. Leaving a match on the table is turning down free money.
Beyond the Match: The Rate Comparison
Without a match or beyond the match threshold, the decision becomes a rate comparison. Your 401(k) earns the long-term stock market average (historically ~7-10% real return, though past performance is not guaranteed). Your debt costs its APR.
If your debt rate is above ~8-9%, paying debt first is mathematically stronger than investing beyond the match. If your debt rate is below 5-6% (like some student loans or a car loan), the investment argument becomes reasonable — especially considering tax advantages and compound time.
The Behavioral Argument for Continuing 401(k)
Interrupting retirement contributions — even temporarily — has a cost beyond the math: many people never restart. Life events, competing priorities, and the habit breaking all conspire against returning to full contributions. If you're uncertain whether you'd restart, a middle path — reduced contributions while making aggressive debt payments — may produce better outcomes than a full stop.
The Tax Consideration
Traditional 401(k) contributions reduce your taxable income. Stopping contributions increases your tax bill, which partially offsets the extra debt payment capacity. Account for your marginal tax rate when doing the math.
The Practical Answer
Always capture the full employer match. For contributions beyond the match: pay down debt above 8-9% first. For debt below 6%, continue contributions. For the 6-8% range, it's genuinely a judgment call where the behavioral factors (will you restart?) deserve significant weight.