Should You Pay Off Debt or Invest?
The debt vs. investing question is one of the most common financial dilemmas. The answer depends entirely on the math: compare your debt's interest rate to your expected investment return. If your debt charges 20% APR, no stock market return reliably beats that. But if you have a 3% car loan, history suggests investing wins over time.
Why Opportunity Cost Matters
Every dollar you put toward debt is a dollar not invested — and vice versa. This calculator makes that trade-off visible. It shows you not just how much interest you save by paying off debt, but what your investment portfolio looks like under each strategy at the same point in time.
Frequently Asked Questions
Should I pay off my credit card before investing?
Almost always yes. Credit card APRs of 18-25% are near-impossible to beat in the market consistently. Paying off high-interest credit cards is a guaranteed, risk-free "return" equal to the interest rate.
What if I have a low-interest student loan?
With rates under 5-6%, the math often favors investing — especially in a tax-advantaged account like a 401(k) or Roth IRA. The long-term S&P 500 average is around 10% annually before inflation.
What if I do both — pay debt and invest at the same time?
This is often the right answer. A common rule: always capture any employer 401(k) match first (it's a 100% instant return), then aggressively pay any debt above 7–8% APR, then invest the rest. Splitting your budget between both paths can be modeled directly in this calculator.
Does this calculator account for taxes on investments?
No — investment returns shown are pre-tax. In a taxable brokerage account you'll owe capital gains tax on gains. In a Roth IRA or 401(k), growth is tax-free or tax-deferred. The actual comparison slightly favors investing in tax-advantaged accounts more than the raw numbers suggest.