Pay Off Debt or Invest?
It comes down to one comparison: your debt's interest rate versus your after-tax expected return.
Fill in the fields above to see your answer.
If your investment return turns out different
Returns aren't guaranteed. Here's how the verdict shifts around the break-even rate:
| Return | Net worth — payoff | Net worth — invest | Winner |
|---|
How this calculator works
Paying off debt is a guaranteed return equal to its interest rate — every dollar of principal you eliminate is a dollar that stops accruing interest, for certain. Investing offers a expected, not guaranteed, return, and any gains may be taxed. So the real comparison is your debt rate against your after-tax expected return, not the headline number.
We simulate paying the debt off entirely with your extra money first (compounding at its own rate the whole time), then investing whatever's left over for the rest of your time horizon. We compare that to investing the extra money from day one while the debt — untouched by extra payments — keeps compounding at its own rate. Whichever path leaves you with more net worth (investments minus remaining debt) at the end wins. We also solve for the break-even return: the investment return above which investing pulls ahead.
What this doesn't account for
- Investment returns are never guaranteed — they can be negative in any given year, while paying off debt is a certain result. This calculator isn't investment advice or a recommendation to invest.
- Minimum payments on the debt aren't modeled separately — see the note below for exactly what that means here.
- Taxes, fees, and account rules (like employer 401(k) matching, which can make "invest" win even at lower returns) aren't factored in beyond the simple tax rate you provide.
- Inflation isn't factored into either side.
- The psychological value of being debt-free, and the risk-reduction value of paying off high-interest debt, aren't purely financial and aren't captured here.
A modeling note: since this calculator doesn't ask for your debt's minimum payment, it assumes a debt that isn't being paid down by extra money simply keeps compounding at its stated rate. In real life, minimum payments would slow that growth — so treat the numbers as illustrating the trade-off, not a precise forecast of your actual balance.
Frequently Asked Questions
What determines whether paying debt or investing wins?
The core comparison is your debt's interest rate versus your expected after-tax investment return. If your debt charges 20% per year and investments are likely to return 7%, paying debt has a guaranteed 20% return — higher than what you'd earn investing. The time horizon and balance also shape the final net worth difference.
How is the net worth comparison calculated?
We model two scenarios over your time horizon: putting extra money toward debt first, then investing once it's paid off; versus investing now while making minimum debt payments. Both end with a net worth figure. Whichever scenario builds more wealth by the end of your horizon is the better financial move.
Why should I include my tax rate on investment gains?
Investment returns are often taxed as capital gains or ordinary income. Entering your effective tax rate gives a more accurate after-tax return — what actually ends up in your pocket. If you're investing in a tax-advantaged account like a Roth IRA or 401(k), you can leave the tax rate at 0%.
What if my debt rate and expected return are equal?
If both rates are identical, the math is neutral. In that case, paying debt often wins on risk grounds — the return on debt payoff is guaranteed, while investment returns are not. Peace of mind from being debt-free has real value that doesn't appear in this calculator.
Related calculators
This tool provides general information based on the numbers you enter. It isn't financial, tax, or investment advice, and it isn't a recommendation to invest or take on any particular level of risk. Consider talking to a licensed financial advisor about your specific situation.