Invest vs Pay Off Debt Calculator

How this calculator works

Every dollar you put toward debt “earns” the interest youavoid— a return exactly equal to the debt’s rate, with zero risk. We compound both options over your horizon:

• Pay debt: interest avoided = amount × ((1 + debt rate)ⁿ − 1)
• Invest: expected earnings = amount × ((1 + return)ⁿ − 1)

Whichever rate is higher wins the math — but the comparison isn’t symmetric: the debt return is guaranteed, while the investment return is a hopeful average that some years will be negative.

The practical rules of thumb

• High-interest debt(credit cards, ~15–25%): almost always pay it off first — few investments reliably beat a guaranteed 20%. See the credit card payoff calculator.
• Low-interest debt (a sub-4% mortgage): investing the difference often wins over long horizons, though paying it down is the risk-free choice.
• Always capture a 401(k) match first— that’s an instant ~100% return that beats both.

Frequently asked questions

Should I pay off debt or invest?

Compare the debt's interest rate to your expected investment return. If the debt rate is higher, paying it off gives a better — and guaranteed — return. High-interest debt almost always wins; very low-rate debt often loses to long-term investing.

Why is paying debt called a 'guaranteed return'?

Eliminating a 20% debt saves you 20% interest for certain — there's no market risk. An investment might return more, but it might also lose money in any given year. Same expected rate, very different risk.

What should I do first of all?

Build a small emergency fund and capture any employer 401(k) match (an immediate, unbeatable return), then attack high-interest debt, then invest. The match and high-interest payoff almost always outrank everything else.