Debt management: How To Avoid Common, But Costly, Money Mistakes
Debt management: How To Avoid Common, But Costly, Money Mistakes
May 27, 2026 Malena de la Fuente and Aaron Goodman
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
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
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