Debt Payoff vs Investing Calculator
Compare the financial outcomes of paying off debt versus investing. This debt payoff vs investing calculator shows you which strategy builds wealth faster based on your debt interest rate, investment returns, and available funds.
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Debt Information
Investment Information
Your Strategy
🚨 High Interest Rate
Your debt interest rate (18%) significantly exceeds typical investment returns. Strongly consider prioritizing debt payoff for a guaranteed return.
ℹ️ Strategy Comparison
Compare all three strategies using the charts below:
- • Pay Debt First: Net worth of $0
- • Invest First: Net worth of $0
- • Split 50/50: Net worth of $0
Net Worth Over Time Comparison
Final Results Comparison
Understanding Debt Payoff vs Investing
The Math: Guaranteed vs Expected Returns
Paying off debt provides a guaranteed return equal to your interest rate. If you have 18% credit card debt, paying it off is equivalent to earning an 18% return with zero risk. Investment returns, while historically higher over long periods, are never guaranteed and come with volatility.
The 15% Rule of Thumb
Financial experts generally recommend prioritizing debt payoff when interest rates exceed 15%. Between 7-15%, it's a judgment call based on your risk tolerance. Below 7% (like mortgages), investing often makes more mathematical sense, especially considering tax benefits.
Psychological Factors Matter
The debt payoff vs investing calculator shows the math, but psychology matters too. Being debt-free provides peace of mind, reduces monthly obligations, and eliminates risk. Some people sleep better with no debt, even if investing might mathematically return more.
Emergency Fund First
Before aggressively paying debt or investing, establish a 3-6 month emergency fund. Without this cushion, an unexpected expense could force you to take on more high-interest debt, undoing your progress. Financial stability comes before optimization.
Employer Match Changes Everything
If your employer offers a 401(k) match, always contribute enough to get the full match before extra debt payments. A 100% match is a guaranteed 100% return - impossible to beat. After maximizing the match, use this debt payoff vs investing calculator to decide your next priority.
Tax Considerations
Investment returns in tax-advantaged accounts grow tax-free or tax-deferred, potentially boosting effective returns. Meanwhile, mortgage interest may be tax-deductible, reducing its effective rate. Student loans also offer interest deductions. Factor in after-tax rates for accurate comparison.
Note: This debt payoff vs investing calculator uses simplified assumptions for illustrative purposes. Actual results depend on market performance, tax situations, and individual circumstances. Consider consulting a financial advisor for personalized guidance based on your complete financial picture.
Disclaimer: This calculator is for educational and illustrative purposes only. Results are estimates and may not reflect actual outcomes. Investing Point does not guarantee the accuracy of these calculations and is not responsible for any decisions made based on this tool.
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