Pay Off Debt vs. Invest Calculator
Compare whether it's better to use extra cash to pay down debt or invest it in the market. See a side-by-side projection of your net worth over time for both strategies.
The Debt vs. Investment Dilemma
It's one of the most common questions in personal finance: "Should I use my extra money to pay down debt, or should I invest it?" The answer isn't always simple and involves a mix of math and psychology.
This calculator models the two scenarios to show you the potential long-term impact on your net worth. By comparing the guaranteed return of paying off debt (your interest rate) against the potential, non-guaranteed return of investing, you can make a more informed decision that aligns with your financial goals and risk tolerance.
How to Use This Calculator
Enter Debt Parameters
Input your total debt amount, the annual interest rate, and your mandatory minimum monthly payment.
Set Investment Expectations
Enter your expected annual return if you were to invest your money in the market.
Define Your Strategy
Enter the 'Extra Monthly Budget' you have available *after* paying the minimums. Then, use the **Allocation Slider** to decide how to split this surplus between paying down debt and investing.
Analyze the Multi-Scenario Chart
The chart now projects three scenarios: Max Debt Focus, Max Invest Focus, and your custom Strategy. Compare them to see which path builds the most wealth or clears debt fastest.
Math vs. Psychology
Understanding the tradeoffs between maximizing net worth and minimizing risk.
The Math of Returns
If you have a 4% mortgage and expected 8% market returns, investing wins mathematically. If you have 20% credit card debt, paying it off wins easily.
Guaranteed Return
Paying off debt is risk-free. A 6% debt payoff is exactly equal to a guaranteed 6% post-tax investment return. That's hard to beat.
Peace of Mind
Math isn't everything. Being debt-free lowers your monthly obligations and stress, which can be worth more than a slightly higher net worth.
Inflation Shield
Fixed-rate debt (like a mortgage) gets 'cheaper' over time due to inflation. Paying it off early loses that inflation benefit.
Take Your Plan to the Next Level
This calculator is just one piece of the puzzle. Use our full Financial Independence Simulator to unite your income, investments, and expenses into a single, interactive roadmap.
Take the Next Step
Once you've decided on a strategy, you can plan your next move.
Frequently Asked Questions
The decision depends on the math and your risk tolerance. Mathematically, if your expected investment return is higher than your debt's interest rate, investing will likely lead to a higher net worth over time. However, paying off debt provides a guaranteed, risk-free return equal to the interest rate, which can provide significant peace of mind.
The 'avalanche' method involves paying off your highest-interest debt first, which is mathematically the most efficient way to save money on interest. The 'snowball' method involves paying off your smallest debts first, regardless of interest rate, to build momentum and motivation. This calculator primarily models the financial impact, which is more aligned with the avalanche approach.
Opportunity cost is the potential gain you miss out on when you choose one option over another. When you choose to pay off debt, your opportunity cost is the potential return you could have earned by investing that money instead. This calculator is designed to help you visualize that opportunity cost.
This is an important consideration. Investment returns are often subject to capital gains taxes, which can reduce your net return. On the other hand, some debt interest (like mortgages) can be tax-deductible, which reduces the effective interest rate. For simplicity, this calculator uses pre-tax numbers, but it's important to factor in your personal tax situation.