Should I pay off debt or invest?

How this works

The math here is small but the framing matters. Every dollar you put toward debt earns you a guaranteed, tax-free return equal to the debt's interest rate. Every dollar you put into the market earns you an expected return — historically ~7% real for a diversified equity index — but that return is taxed (on dividends + capital gains) and uncertain.

The decision rule

• If debt rate > market return (after tax), pay down debt first.
• If market return (after tax) > debt rate + ~1% risk premium, invest.
• In between, it's close enough that behavior wins — pick whichever you'll actually stick with.

What the numbers show

Both paths use the same extra money for the same stretch of time: the months it takes that monthly amount to clear the balance. Pay it down and you end debt-free with nothing invested. Invest it instead and you end with a portfolio — but the debt has kept compounding at its rate. The invest path wins only if the portfolio is bigger than the debt you'd still owe, which happens exactly when the after-tax return beats the debt rate. If the payment doesn't cover the monthly interest, the balance never pays off and there's no finish line to compare at.

We treat the debt as non-deductible, which fits most credit cards and personal loans. Student loan interest is an above-the-line deduction (up to $2,500 a year, phased out at higher incomes) — no itemizing needed — so if you qualify, its real cost is a bit under the APR; enter a slightly lower rate to reflect that. For mortgage debt, see the refinance calculator. For federal student loans specifically, the student loan calculator compares aggressive payoff against IDR forgiveness — a path this calculator doesn't model.