Debt management
How to avoid common, but costly, money mistakes
May 27, 2026
Americans are carrying more debt than ever before. Total household balances now approach $19 trillion, reflecting a steady increase over the past decade.1 In 2025, millennials in their mid-30s held roughly twice as much nonhousing debt—including student loans, auto loans, and credit card debt—as baby boomers did at a similar age.2
As debt burdens have grown, so too has the importance of making the right repayment decisions. Managing debt involves meaningful trade-offs. Even decisions that feel financially responsible—such as paying down a mortgage faster or holding excess cash beyond emergency savings—can sometimes lead to higher overall costs or lower long-term wealth.3 An important but often overlooked insight is that debt repayment is just another form of savings.
Vanguard researchers explored the problems that can arise when investors fail to coordinate borrowing and savings decisions. Their research paper, Balancing Saving and Debt Paydown: Money Mistakes to Avoid (de la Fuente et al., 2026), presents the results. Here are two common mistakes and some practical ways investors can address them:
Mistake #1: Paying down high-interest debt too slowly
The researchers found that 35% of all Vanguard investors carry revolving credit card debt and the average balance carried is about $4,100. With the average credit card interest rate of 21%, that balance costs more than $800 a year in interest.4
Yet 57% of investors with credit card debt could pay it off by redirecting dollars that are earning lower returns. Specifically, 67% of investors with brokerage accounts have cash in their accounts that could pay off some or all of their credit card debt, while 60% of 401(k) investors contribute above their company match limit in their retirement plan. Additionally, 30% of all investors with credit card debt make extra payments on other lower-interest debts, like mortgages or auto loans.
“The typical investor could pay off credit card debt in less than 18 months if they reallocated this extra cash toward credit card payments,” said Malena de la Fuente, Vanguard investment strategy analyst and lead author of the paper.
Many investors carry revolving credit card debt despite having cash available
Notes:
We consider a million-person sample of Vanguard investors from 2023 that contains both eligible 401(k) participants and individual investors and for which we have monthly credit bureau data for 2023. The monthly data are necessary for calculating revolving credit card debt, as each credit card balance is either paid off in full or starts accruing interest in the following month (see Gibbs et al., 2025). We define "prepaying low-cost loans" as making payments on installment loans (mortgage, student loan, or auto loan) that exceed the minimum required payment by at least $20. We define "contributing above the employer match" as contributing a higher percentage of one's income than the employer match limit. We calculate the average available cash for brokerage account holders as the average amount of cash held in their brokerage accounts as of December 2023. We calculate the contributions above the 401(k) employer match limit as the average amount above the match that is contributed in 2023. We calculate the extra loan payments as the average amount that is paid above minimum payments during the course of 2023.
Sources:
Vanguard calculations, using Vanguard administrative data matched anonymously with data from Equifax.
Mistake #2: Paying down low-interest debt too quickly
While some investors pay down credit card debt too slowly, others speed up paying down lower-interest debt by prepaying loans. Within Vanguard-administered 401(k) plans, roughly 50% of employees with mortgage, auto, or student debt make extra payments (payments made in addition to the minimum monthly payment) at least once per year. At the same time, 30% of these prepayers are leaving employer-match dollars on the table—costing them almost $1,100 a year in missed 401(k) contributions.
Secured debt like auto loans and mortgages usually have single-digit interest rates, while employers often match 401(k) contributions at 50 or 100 cents on the dollar. This means that—when considered as an investment—matched retirement contributions have a much higher rate of return than extra loan payments.
“Riskless returns of 50%–100% are hard to come by in financial markets,” said Aaron Goodman, Vanguard senior investment strategist and one of the paper’s coauthors. “That makes earning the full 401(k) match a priority before prepaying low-interest debt.”
Prepaying debt can come at the cost of the full 401(k) match
Notes:
We consider eligible employees at Vanguard-administered 401(k) plans in 2023. We define prepayers as those who make a payment at least $20 larger than the required minimum monthly payment in at least one of the four monthly credit pulls we observe for 2023. For each loan type, we calculate the percentage of prepayers as the share of mortgage, student loan, or auto-loan holders who meet this definition for their respective loan. Because we only observe four monthly credit pulls, we obtain an annual prepayment amount by multiplying each employee's prepayment amount by three. We then compute the additional match dollars each employee would earn by reallocating their annualized debt prepayment to the 401(k) plan, and take the average across all prepayers who do not get their full 401(k) employer match.
Sources:
Vanguard calculations, using Vanguard administrative data matched anonymously with data from Equifax.
Three practical moves to support financial wellness
The research highlights several implications for financial decision-making. Managing debt alongside saving and investing can feel complex, but simple rules of thumb can make an outsized impact over time. Three principles stand out:
- Earn the full 401(k) employer match. Since a 401(k) match is extra retirement funding from an employer, it essentially nets a 50%–100% return on the matched portions of an employee’s contributions.
- Prioritize high-interest debt. Paying down high-interest debt, such as credit card balances, as quickly as possible can significantly reduce the total interest paid over time and free up cash for other goals.
- Evaluate extra payments on lower-interest debt. Before making additional payments on lower-interest loans, compare the after-tax cost of the debt with the potential return from other investment priorities. Choosing the option with the stronger long-term benefit can help improve overall financial outcomes.
When debt repayment is considered alongside savings and investing, small shifts in priorities can have meaningful long-term effects. By coordinating financial decisions across the whole balance sheet, investors can avoid paying more in interest and getting less in returns—and keep more of their money working for them.
1 Our source for this data is Quarterly Report on Household Debt and Credit: 2025: Q4, Federal Reserve Bank of New York, 2026, available at https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2025Q4.
2 Fiona Greig, Kelly Hahn, Fu Tan, and Nicky Zhang. The Vanguard Retirement Outlook: Strong National Progress, Opportunities Ahead. Vanguard, 2025. https://corporate.vanguard.com/content/dam/corp/research/pdf/vanguard_retirement_outlook_strong_national_progress_opportunities_ahead.pdf.
3 For a detailed analysis of the importance of emergency savings for investors, see Paulo Costa, Marsella Martino, and Malena de la Fuente, The Relationship Between Emergency Savings, Financial Well‑Being, and Financial Stress, Vanguard, 2025, available at https://corporate.vanguard.com/content/dam/corp/research/pdf/relationship_between_emergency_savings_financial_well_being_financial_stress.pdf.
4 Our source for the 21% figure is Table Data - Commercial Bank Interest Rate on Credit Card Plans, All Accounts, Federal Reserve Bank of St. Louis, 2026, available at fred.stlouisfed.org/data/TERMCBCCALLNS.
Notes:
All investing is subject to risk, including the possible loss of the money you invest.
Contributors
Malena de la Fuente
Aaron Goodman