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Pay Off Debt vs Invest Calculator

Should the spare money kill the debt or go into the market? Compare net worth under both strategies.

How it is calculated

The tool simulates two strategies month by month over the chosen number of years, both spending the same total each month (minimum payment + extra). Debt-first sends the whole amount to the debt, then invests everything once the debt is gone. Invest-first pays only the minimum and invests the extra from day one, and after the debt is cleared invests the whole budget. Interest accrues monthly at APR ÷ 12 and the investment grows monthly at return ÷ 12. At the end, net worth = investments − tax on gains − remaining debt, where gains are the investment value minus the money put in. The larger net worth wins. The model uses a constant return and ignores inflation, fees and tax on the debt side. If the minimum payment is below the monthly interest, the balance grows.

Worked example

Debt of 20000 at 18% APR, minimum payment 500, extra 300 a month, an expected investment return of 8%, 15% tax on gains, over 5 years. Debt-first clears the debt in 32 months and then invests $800 a month, ending with a net worth of $24,620.83. Invest-first pays only 500, so after 5 years $757.07 of debt remains, and its net worth is $20,679.53. The difference is $3,941.30, so the tool recommends paying off the debt first. It reports $5,501.21 of interest saved. At 5% APR instead, the result flips by about $377 in favour of investing.

Try this example →

Common mistakes

  • Entering the monthly payment as the extra: minimum payment and extra are separate, and both are spent in each strategy, so the total budget is the sum.
  • Typing the expected return as a guaranteed rate: the tool uses a constant 8% every month, whereas real markets vary; a small change in the return can flip the answer when the debt rate is close.
  • Entering the monthly payment below the interest: the debt then never shrinks, and the result shows "Not cleared in this period".
  • Entering 0% tax for an account that is actually taxed: the tool taxes the gains once at the end, so use the rate you really pay.
  • Comparing debts with a tax deduction or an employer match: the tool has neither, so it can understate the case for investing.

About this calculator

Extra cash at the end of the month can go toward paying down debt faster or toward building an investment portfolio — and the two paths compete for exactly the same dollars. Paying debt down early delivers a guaranteed, risk-free return equal to the debt’s interest rate, since every dollar of principal you eliminate is a dollar of interest you will never pay; investing instead offers a return that is potentially higher over the long run but uncertain, since it depends on how markets perform.

What tips the decision one way or the other is the spread between the debt’s rate and a realistic expected investment return, the tax treatment on each side (an employer 401(k) match or tax-advantaged account can make investing win even against high-rate debt, while mortgage interest deductions can lower the effective cost of that debt), how much risk and volatility you can tolerate, how soon you might need the cash back, and the simple psychological value some people place on being debt-free.

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