Debt Payoff vs Investing Calculator
Should you throw every spare pound at your debt, or start investing while carrying it? This calculator runs both scenarios side by side and shows which approach produces a higher net worth over your chosen time horizon.
Your debt & investment details
Paying off your debt first appears to be the stronger financial move in this scenario. Your debt rate (8%) is close to or higher than your expected investment return (7%), meaning every dollar of debt is costing you more than investing would earn. Once the debt is cleared, you can redirect the full budget toward investing.
Understanding the two strategies
Strategy A directs all available monthly budget (minimum payment + extra) toward the debt. Once the debt is cleared, the freed-up cash is then invested for the remainder of the time horizon.
Strategy B pays only the minimum on the debt and invests the extra budget immediately. The debt takes longer to clear and costs more in interest, but the investments have more time in the market. The net worth comparison accounts for the remaining debt balance as a liability.
The key tipping point: debt rate vs investment return
The most important factor in this decision is the relationship between your debt interest rate and your expected investment return. A simplified rule of thumb:
| Debt Rate vs Expected Return | Typical Guidance |
|---|---|
| Debt rate is higher (e.g., 12% debt, 7% return) | Pay off debt first |
| Similar rates (within ~2%) | Toss-up — personal preference applies |
| Return is much higher (e.g., 4% debt, 9% return) | Investing may win mathematically |
| Any situation with employer matching available | Capture matching first, then reassess |
This is educational guidance, not a personalised financial recommendation. Your tax situation, risk tolerance, and other factors will affect the optimal choice for you.
What the calculator does not include
This calculator simplifies a complex decision. It does not account for: taxes on investment gains, tax relief on debt interest (applicable to some mortgages), employer pension matching, emergency fund considerations, changes in income or spending, or the psychological impact of carrying debt. These factors can significantly change the optimal strategy for a real individual.
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