Should student save or pay off his debt?

At 25, Andrew Wagner has a bright future. He has a master's degree in international relations and a job with the World Bank.

But Wagner also has accumulated $40,000 in student loans and expects to pile on more debt for law school.

"I'm looking at being 28 with a lot of loans and no savings for retirement," says Wagner. "Should I pay off the debt or start saving for retirement?"

Plenty of twentysomethings are asking the same question. Still, when squeezing the most out of a starting salary, don't rush to pay off all your student loans. Set priorities by identifying "good" vs. "bad" debt and determining where you can earn the biggest return.

When you take on "good" debt, you borrow to help build future wealth, says Bob Schumann, a financial adviser in Gahanna, Ohio. Student loans fit this definition because the asset you're buying will last longer than the debt.

"Your college education paves the way for you to make more money throughout your lifetime," says Schumann.

On the flip side is "bad" debt — loans for anything that loses its value over time, such as a car. Credit-card debt is the leading culprit here.

Paying off a credit-card balance with an 18 percent interest rate is like earning 18 percent on your money. So getting rid of high-priced debt should be your top priority — with one exception. If your employer offers a 401(k) or similar retirement plan, contribute as much as you can to take advantage of any employer match.

If you can't use a 401(k) plan, you can open a Roth IRA, which gives you tax-free income in retirement and limited access to your money if you need it.

"People think they have years to save for retirement, but there really is no substitute for time," says Marnie Aznar, a financial planner in Morris Plains, N.J. "The earlier you start, the more time your money has to grow."

Paying off debt vs. saving doesn't have to be all or nothing. On an entry-level salary, you could contribute $50 per paycheck to your retirement account and put $50 toward paying off credit-card debt.

And what about student loans? If you don't have expensive consumer debt, it's fine to pay ahead on your student loans. But don't pay them off at the expense of saving for retirement, says Aznar. Your priorities should be repaying credit-card debt and putting as much as you can into a retirement account.