Tools/Debt & housing/Pay Off Debt or Invest✓ CHECKED AGAINST WORKED EXAMPLES · SEP 29, 2026

Should extra cash pay off my debt or be invested?

Compare paying a debt down with investing the same extra money each month, after tax on the growth, and see how often investing has really beaten your debt’s rate.

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Debt balance$Prefilled from your Money Map’s high-interest debt. Use the balance on your statement.Interest rate on the debt (APR)%An example: the 22% the Money Map assumes for a credit card. Use your own rate.Years to pay it off at the scheduled paymentyearsAn example to start from. It sets the scheduled payment and the length of the comparison.Extra you can put toward it each month$An example: the $300 a month the Money Map suggests. The same amount is used either way.Investment return, before tax%A yearly return in ordinary (not inflation-adjusted) dollars. An assumption, not a forecast; real returns vary and can be negative for years.Tax on investment growth%Taken from the growth at the end. Long-term capital gains are 15% for most people; use 0 for a Roth or 401(k) you will withdraw from tax-free.

PAY DOWN OR INVESTPAYING DOWN COMES OUT AHEAD

$4,232

With $12,000 owed at 22.00% over 5 years and $300 extra a month, paying down clears the debt 3 years early and saves $4,996 of interest. After 5 years and 15% tax on growth, if investments earn 7.0% a year the result is $4,232 ahead for paying down. Investing comes out ahead only if it earns more than about 26.93% a year; paying down earns a certain 24.36% a year, and investing does not. Since 1928, all-stock portfolios earned at least 22.0% a year in 0 of 89 ten-year stretches.

Debt gone in

2 yr 0 mo

Interest saved

$4,996

Break-even return

26.93%

Paying down ahead by

$3,651

UNDERSTAND YOUR RESULT

LIBRARY CHAPTERGood Debt and Bad Debt: Judging What a Loan BuysFour questions that replace the good-debt and bad-debt labels, worked examples of how the term changes the cost of a car loan and a mortgage, how to judge education debt, and when interest deductions actually help.LIBRARY CHAPTERAvalanche or Snowball: Choosing a Payoff OrderWhy paying the highest rate first saves the most interest, when paying the smallest balance first is worth its cost, what the research says about motivation, and how to set up either method so it runs on its own.

Terms:Prepay debt or invest Mental accounting

Investments minus what you still owe, before tax, in future dollars

Pay downInvest

Before tax, counting what you still owe, the pay-down route is $272 ahead after one year and $4,098 ahead after 5.

How often stocks beat a rate over ten years, 1928 to 2025

3% a year80 of 89 ten-year stretches

90%

5% a year76 of 89 ten-year stretches

85%

7% a year65 of 89 ten-year stretches

73%

10% a year46 of 89 ten-year stretches

52%

15% a year22 of 89 ten-year stretches

25%

22% a year0 of 89 ten-year stretches

0.0%

Over 89 rolling ten-year stretches of US stock returns, all-stock portfolios earned at least your 22.0% in 0 (0%) and a 60% stock, 40% bond mix in 0 (0%). The worst all-stock stretch returned −1.7% a year and the best 20.1%. Paying down earns the rate with certainty; the bars are how often investing matched it, before tax and costs, and past results do not promise future ones.

Which comes out ahead at different investment returns

Yearly return	Pay down, after tax	Invest, after tax	Ahead
3%	$23,875	$19,168	Pay down by $4,707
5%	$24,475	$19,993	Pay down by $4,483
7% (yours)	$25,087	$20,855	Pay down by $4,232
9%	$25,711	$21,757	Pay down by $3,954
11%	$26,347	$22,700	Pay down by $3,647

The two are equal at about 26.93% a year. Below it paying down wins, above it investing wins; the debt’s 22.00% rate compounded monthly is 24.36% a year, and taxes on the growth push the break-even above it.

What moves the needle

Each row re-runs the calculation with one change. Click to apply.

How it's computed

FORMULA

Payment = balance × r ÷ (1 − (1 + r)^−n), with r = rate ÷ 12 and n the months to pay it off

Pay down: the extra goes to principal each month; once the debt is gone the whole payment plus the extra is invested each month

Invest: the debt runs its full term and the extra is invested each month; monthly investment rate = (1 + yearly return)^(1/12) − 1

After-tax value = investments − tax rate × (investments − what was put in)

Break-even return = the yearly return at which the two after-tax values are equal

The two routes use the same cash every month: the $331 scheduled payment plus $300 extra. They are compared at the end of the 5 years, when both owe nothing.
Investments earn a steady 7% a year in ordinary dollars, taxed at 15% on the growth at the end. Real returns are not steady and can be negative for years; paying down earns a certain 24.36% a year.
The history is 98 calendar years of US stock returns (the S&P 500 with dividends, Damodaran, read September 29, 2026) and, for the mix, 10-year Treasury bonds, in rolling ten-year stretches, before tax, fees and any need to sell early.
Interest deductions are not counted: mortgage and student loan interest can be deductible for some people, which makes paying down worth less than shown. Credit card interest is not deductible.
The debt is treated as a fixed payment over the years you enter, with no penalty for paying early. A credit card’s minimum payment falls as the balance does, so a real card takes longer than the same payment schedule would suggest.
Liquidity is not priced: money used to pay down a debt cannot easily be taken back, while invested money can be sold. Many people keep an emergency fund before doing either.

WORKED EXAMPLE · SAMPLE NUMBERS

Payment $331 a month on $12,000 at 22.00% for 5 years. Paying down with $300 extra clears it in 2 years, saving $4,996, then invests $631 a month. After tax on growth: $25,087 paying down against $20,855 investing, a difference of $4,232.

SOURCES

[1]Historical Returns on Stocks, Bonds and Bills: 1928-2025Aswath Damodaran, NYU Stern [2]Topic no. 409, Capital gains and lossesInternal Revenue Service [3]Student loan interest deduction (Topic no. 456)Internal Revenue Service [4]Publication 936, Home Mortgage Interest DeductionInternal Revenue Service

HSBuilt by Hussain Sehorewala · checked against worked examples · Sep 29, 2026

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Questions about this result

It comes down to the debt’s rate against what you can reasonably expect from investing, after tax. Paying down a debt earns its interest rate with certainty; investing might earn more, or less, or lose money for years. A rate above what investments have usually earned favours paying it down, and a low rate favours investing. This page shows the break-even for your numbers.

The break-even return on the table above: the yearly return at which both routes end equal after tax. For a debt at the example 22% it is well above what stocks have ever earned over ten years in the record; for a debt at 4% it is far below what they usually earned.

In 98 years of US stock returns (1928 to 2025), an all-stock portfolio earned at least 6% a year in 72 of 89 ten-year stretches, at least 10% in 46 and at least 22% in none. That is history before tax and costs, not a forecast, and a short stretch can be much worse.

Contributions that earn a match are usually the first place for extra cash, because the match is an immediate return that no debt rate matches. The 401(k) match page shows what you are leaving on the table.

Sometimes. Mortgage interest on up to $750,000 of loans and up to $2,500 of student loan interest can be deductible, depending on your income and whether you itemize. Credit card and most other consumer interest is not. This page ignores the deduction, so it makes paying down look slightly better than it may be for a deductible debt.

Money paid to a debt is hard to get back, while money in savings is not. Most planners suggest a cushion of a few months of spending before paying down low-rate debt or investing; the financial health page compares yours with the usual benchmarks.

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