Managing Debt While Saving for Retirement: Key Strategies for Wealth-Building Professionals

By Andrew Comstock, CFA®

With interest rates at levels not seen over the past decade and nationwide credit card debt hitting records, even high-earning families may be feeling the ripple effects of rising rates. In our work with clients, we discuss how to adjust and incorporate a strategic mindset to navigate this type of environment.

While debt (the good kind) has historically been a useful tool in building long-term wealth, today’s rates may require a more nuanced approach. We’ll explore how high-income earners should think about “good debt” and “bad debt,” when to pay down debt levels aggressively, and leveraging tax strategies to optimize financial outcomes toward your long-term objectives.

The Impact of Rising Rates

Increasing interest rates make borrowing more expensive and this can dampen economic activity at both the personal and broader economic levels. Rising rates hinder the ability to afford higher-priced homes or home improvements and diminish the profitability of business ventures or expansion. Variable rate loans and home equity lines of credit (HELOCs) become less attractive as financing vehicles. Higher rates also tend to inflate credit card balances that often balloon more quickly unless spending is reduced or payment amounts are increased.

Consider a Strategic Paydown on High-Cost Debt

Credit card balances are considered “bad debt” since they tie directly to consumption (spending) and have no tax benefits or advantages to other areas of one’s finances. During good economic periods, we often recommend paying down high-interest card balances and personal loans (such as auto loans) to help improve credit scores and lower long-term costs on your money.

At the same time, it may be beneficial to examine the opportunity cost of accelerating the paying off of lower fixed-interest loans. One question we’re fielding lately from clients is whether to make extra principal payments on fixed-rate home mortgages that originated during the ultra-low-rate COVID period (2020-2021). We may then examine and discuss the costs-benefits of other opportunities where potential returns on prudently investing this money may exceed the interest cost on their mortgage after factoring in tax benefits.

Analyze Opportunities Where it Makes Sense to Use Debt

Even in a high-rate environment, certain types of “good debt” may be utilized to grow wealth. Think of “good debt” as “productive debt.” A fixed-rate mortgage or equity line of credit is normally “good debt” since it’s used to purchase (or improve) appreciating assets, such as real estate. A “margin loan” where an investor borrows against the equity in a high-performing securities portfolio is another example of “productive debt” that can be used as a strategic tool.

Likewise, even though rates are higher now, borrowing against your home via a HELOC may be advantageous if an improvement will enhance the value of your property or result in higher rents that can be charged on other investment property. Borrowing via a HELOC may also be more beneficial to finance education costs, compared to the current 9.08% rate on college PLUS loans.

The Power of Liquidity

From another standpoint, maintaining liquidity can sometimes outweigh the benefits of paying down debt. During life transitions such as job changes, retirement, or divorce, it may be better (and less anxiety-provoking) to hold on to cash and beef up contingency funds, or in anticipation of investing opportunities later. Before paying down debt, evaluate your current and near-term financial situation or have a discussion with us about the cost-benefits of a liquidity strategy. The flexibility that liquidity provides can be a powerful asset in navigating financial decisions

Know What Is Deductible vs. Non-Deductible Interest

When it comes to debt, not all interest is created equal—at least in the eyes of the tax code. Congress generally allows tax deductions on interest that supports favored and productive uses of debt, meaning certain types of borrowing come with tax advantages.

For instance, the interest on home mortgages and home equity loans is often tax-deductible, making homeownership more affordable over time. Similarly, education loans qualify because they’re considered an investment in human capital—helping borrowers improve their earning potential. Business loans also typically enjoy this benefit, recognizing that companies need access to capital to grow, innovate, and create jobs.

And here’s one that investors should pay attention to: interest on margin loans—debt used to purchase taxable securities—is also generally tax-deductible. This means investors leveraging their portfolios for potential growth may be able to offset borrowing costs, provided they adhere to IRS rules.

Understanding the tax treatment of debt can help you borrow wisely, optimize your financial strategy, and potentially reduce your tax burden. If you’re unsure how these rules apply to your situation, working with a financial advisor can ensure you make the most of the available deductions. 

Knowing what kinds of interest don’t carry any tax advantage is just as important. Credit card interest, auto-loan interest, and other types of “consumerism” debt not only tend to cost more over time, draining cash flow, but also doesn’t help you taxwise—and may eventually wreak havoc with your long-term planning and meeting your objectives as higher rates persist.

Talk to Us About Your Debt Strategy

At Beyond Wealth, we focus on the most efficient strategies to help you realize your objectives and life aspirations. Our independent advisory firm offers an array of services—focused on our clients—to help pursue a confident financial future. 

Our goal is aligned with yours: Connect your wealth to your life’s objectives and empower you to choose and follow the financial road that feels right for you and your family.

Are you interested in finding out if the above debt strategies could work for you? Give us a call (913) 871-7980 or email andrew@beyond-wealth.com to schedule an introductory meeting and start on a better financial path toward your own vision. 

About Andrew

Andrew Comstock, CFA® is Principal & Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm in Overland Park, Kansas, dedicated to empowering clients to make impactful financial decisions. Serving the Kansas City metro area, Beyond Wealth specializes in helping wealth-building professionals and business owners navigate life transitions. With a mission to provide comprehensive wealth management services, Andrew’s proficiency lies in leveraging his background in institutional investment management to create tailored investment strategies. He provides research-driven portfolio management, focusing on helping clients build wealth for key milestones, whether it’s buying their forever home, purchasing a business, or funding their children’s education. Alongside Brandy, Andrew combines comprehensive planning with a long-term investment approach, helping clients grow their wealth while enjoying life.

Andrew began his career in institutional investment management, managing portfolios for insurance companies, pension funds, and mutual funds. Inspired by a desire to make a more personal impact, he transitioned to advising individuals directly, bringing his passion for financial empowerment to Beyond Wealth. Known for his commitment to high standards and always seeking to grow and discover, Andrew is dedicated to delivering thoughtful, tailored strategies for his clients’ unique financial needs.

Andrew graduated from the University of Tulsa with a BSBA in Finance and obtained the Chartered Financial Analyst® designation. Active within his professional community, he’s a member of the CFA Institute, Kansas City CFA Society, and the Overland Park Rotary Club.  Andrew is a past president of his Rotary club, served on the University of Tulsa’s Board of Trustees, and was the National Board President of the Alumni Association at TU. He is the Investment Chair for the Catholic Foundation of Northeast Kansas. Outside of work, Andrew is a devoted Chiefs, Royals, Sporting KC, and Everton fan who loves exploring KC’s vibrant restaurant scene, especially the BBQ hotspots. With dual citizenship in the U.S. and Ireland and experience living in Switzerland, he’s an avid traveler who’s visited 37 countries and counting. Andrew is also a proud cancer survivor, a perspective that reinforces his commitment to helping families feel confident about their financial futures while embracing the present. To learn more about Andrew, connect with him on LinkedIn.