Pay Off Debt vs Invest Calculator
Decide whether to pay off debt early or invest the extra money based on rates and returns.
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Frequently Asked Questions
Should I pay off debt or invest?
The mathematical answer: if your debt rate exceeds expected investment returns, pay off debt. If investment returns exceed debt rate, invest. In practice, the break-even is around 6-7%. Credit card debt at 20%? Pay it off. Mortgage at 6.5% and stock market returning 9%? The math slightly favors investing, but emotional factors matter too.
Does paying off debt count as an investment?
Paying off a 10% interest rate loan is equivalent to a guaranteed 10% return — better than most investments after tax and risk adjustment. High-interest debt payoff is often the highest "return on investment" available, especially when accounting for the guaranteed, risk-free nature of the return.
What debts should I always pay off before investing?
Always pay off: credit cards (15-25% APR), payday loans (300%+ APR), personal loans above 8-10%, and private student loans above 7%. The minimum threshold varies: some say pay all debt over 5-6% before investing; others say capture employer 401k match first (it's a 50-100% instant return) regardless.
$200 a month: extra mortgage payment or invest it?
The loan: $300,000 at 6.5% over 30 years, payment $1,896.20. Option A puts $200 extra toward principal every month, which clears the loan in 277 months and saves $103,449 of interest. Option B invests the $200 and keeps paying the mortgage on schedule. The fair comparison is at month 277: the investor still owes $126,491 on the mortgage, so the question is whether the investment account is worth more than that.
| Investment return (annual) | Account value at month 277 | Mortgage still owed | Investor ahead or behind |
|---|---|---|---|
| 5% | $104,294 | $126,491 | Behind by $22,196 |
| 7% | $138,236 | $126,491 | Ahead by $11,746 |
| 10% | $216,878 | $126,491 | Ahead by $90,387 |
Returns before tax and fees. The prepayment return is the mortgage rate, 6.5%, guaranteed. Investing wins only if the return beats that after tax.
Worked example
At 7%, the usual long run assumption for a stock heavy portfolio, investing comes out $11,746 ahead over 23 years, a small margin for taking market risk. At 5%, prepaying wins by $22,000. The break-even return is about 6.5%, the mortgage rate, which is no coincidence: prepaying a 6.5% loan is a risk-free 6.5% return. A 3% mortgage from 2021 is a different case entirely; almost any investment beats prepaying it.
Taxes tilt the answer
Investment gains in a taxable account lose 15% to 20% to capital gains tax and more if they throw off dividends or interest along the way, so a 7% pre-tax return is nearer 6% after tax, below the 6.5% mortgage rate. In a 401(k) with an employer match, the match alone makes investing the clear winner: $200 matched at 50% is $300 invested, a 50% instant return. Mortgage interest is deductible only for those who itemize, which in 2026 is a minority, so the after-tax cost of the mortgage is the full rate for most borrowers.
The usual order
Employer match first, always. Then high-rate debt (cards, personal loans). Then an emergency fund of three to six months. Then, for a mortgage above about 6%, prepaying and tax-advantaged investing are close enough that splitting the money is a reasonable answer. For a mortgage below 4%, invest. Prepaying also has a liquidity cost: money in the house can only come back out through a sale, a refinance or a HELOC, while an investment account can be sold in a day.
What the calculator above lets you change
The extra amount, the mortgage rate and balance, the expected return, the tax rate on gains, and whether the investment is in a taxable or tax-deferred account. Try the pessimistic return before the optimistic one; the decision is usually driven by how much a bad decade in the market would hurt, not by the average case.