How this calculator works
Two plans that spend exactly the same money each month. Debt first: the extra goes on the debt, and once it's paid off the whole payment is invested. Invest first: you pay the minimum and invest the extra, and the minimum is invested too once the debt is gone. The calculator runs both month by month and compares what you own, minus what you still owe, at the end.
- Each month the debt grows by balance × APR ÷ 12 and investments by balance × return ÷ 12.
- Debt first: minimum + extra goes on the debt; after payoff the whole amount is invested.
- Invest first: the minimum goes on the debt and the extra is invested; after payoff the minimum is invested too.
- Net worth at the end = investments − debt still owed.
Worked example
With these inputs: debt balance $10,000; debt apr 22%; minimum monthly payment $250; extra money each month $200; expected yearly investment return 7%; compare after 10.
The result is paying off the debt first comes out ahead after 10 years by $5,804.45, with debt first: net worth at the end $53,975.20 and debt first: debt paid off in 2 years 5 months. Debt interest saved is certain; investment returns are not, and this ignores taxes, fees and any employer 401(k) match (a match is an instant return that usually beats paying extra on low-rate debt).
The rule of thumb, and where it bends
If the debt's APR is higher than the return you expect after tax, paying it off wins; if it's lower, investing usually wins. At exactly the same rate both plans end level, which you can see in the last row of the table. With $10,000 at 5% (a $200 minimum) and the same $200 extra, investing at 7% comes out only $446.01 ahead after 10 years, a small reward for taking on market risk.
Paying down debt is a guaranteed return equal to its APR. An investment return is an average that can be negative for years. That's why most people pay off credit cards (often 20%+) first, weigh it for car loans and student loans, and invest alongside a low-rate mortgage.
Before you choose
Keep a small emergency fund first, so a surprise bill doesn't go back on the card. The emergency fund calculator sizes it. If your employer matches 401(k) contributions, contribute enough to get the full match before paying extra on anything but high-interest debt: a 50% match is a 50% return on day one.
If you have several debts, the debt snowball calculator orders them, and the credit card payoff calculator shows what the extra payment does on one card.
Sources
Frequently asked questions
Is it better to pay off debt or invest?
Compare the debt's APR with the return you expect. Above it, pay off the debt; below it, investing usually wins over time. With 22% card debt and a 7% return, paying the debt first was $5,804.45 ahead after 10 years in the example.
Should I pay off a 5% loan or invest?
It's close. In the example, $10,000 at 5% with $200 extra a month, investing at 7% was only $446.01 ahead after 10 years, and that assumes the market returns 7% every year. Many people split the extra between the two.
What interest rate should I pay off before investing?
Many planners use 6–8%: above that, the guaranteed saving from paying off the debt beats the long-run average stock return after tax and risk. Credit cards are almost always above it.
Does this include my 401(k) match?
No. An employer match is an immediate return on your contribution, so get the full match first, then use this calculator for the money left over.
Why do both plans end level when the return equals the APR?
Because a dollar paid on the debt and a dollar invested then grow, or save, at the same rate. That's a quick check that the comparison is fair.