Should you pay off debt or invest your extra cash? Enter your numbers to see which strategy builds more wealth.
| Year | Debt Balance | Pay-Off Net Worth | Invest Net Worth | Invest Portfolio | Advantage |
|---|
Enter your current debt balance, interest rate, and minimum monthly payment. Then input your expected investment return, tax rate, and how much extra cash you have each month. The calculator runs two parallel simulations — one where you put every extra dollar toward debt, and one where you invest immediately while paying minimums. Your net worth at the end of each year is compared side-by-side.
Adjust the time horizon slider to see short-term vs. long-term outcomes. The "employer match" field is critical — if your employer matches 401k contributions, that's an instant 50–100% return you should almost never leave on the table.
This is one of the most debated personal finance questions, and the answer genuinely depends on your specific numbers. A person with $20,000 in credit card debt at 24% APR should almost certainly pay it off first — the guaranteed 24% "return" from eliminating that interest crushes the expected 7–10% from stocks. But a person with a 3% mortgage and $500/month to spare? They're likely better off maxing their Roth IRA.
The breakeven point — where the investment return equals the after-tax debt interest cost — is the key metric. If your debt costs 7% and your expected investment return is 8%, the spread is thin, and risk tolerance matters. A guaranteed 7% (debt payoff) vs. a volatile expected 8% (markets) may favor debt payoff for conservative investors. High-income earners with tax-advantaged accounts shift this math further toward investing. This calculator surfaces that hidden math clearly.
Each scenario runs a month-by-month simulation. For the Pay Off Debt path: minimum payment plus extra cash goes toward the debt principal. Once debt hits zero, the total freed-up cash flows into investments. For the Invest First path: minimum payment covers debt, and extra cash goes straight into the investment account. Net worth at each year = Investment portfolio − Remaining debt balance.
The employer match is modeled as an immediate return on investment contributions — it's added to the portfolio in the first year up to typical match caps. Tax-advantaged accounts use the full return rate; taxable accounts apply the marginal tax rate as a drag on gains.
A commonly used threshold is 6–7%. Below that rate, investing in a diversified portfolio is likely to outperform debt payoff over long periods. Above 8%, paying off debt first is almost always the better mathematical choice. Between 6–8%, your risk tolerance and liquidity needs should guide the decision.
For most people, investing outperforms extra mortgage payments due to low mortgage rates (especially those locked in below 4%) and the mortgage interest deduction. However, the psychological value of owning your home outright is real and valid. This calculator handles mortgages — just mark the interest as tax-deductible and use your actual rate.
This calculator assumes you're comparing one debt to investing — it's best used when evaluating a single debt or your total debt load. The avalanche method (highest interest first) is mathematically optimal across multiple debts. Use this tool to decide whether to aggressively pay any debt vs. invest, then use the avalanche or snowball for ordering multiple debts.
No — all figures are in nominal (today's) dollars. To adjust for ~3% inflation, reduce your investment return estimate by 3 percentage points (e.g., use 5% instead of 8%) for a real-return comparison. Debt interest rates are also nominal, so the relative comparison remains valid either way.