Have some extra money each month? Compare putting it toward a loan with investing it instead. Both plans spend exactly the same amount each month, and the calculator tracks the debt, the investments and taxes to show which leaves you with the higher net worth, plus the investment return you would need to beat paying off the debt.
Last updated:
Your debt
$
%
$
$
The amount you could either pay toward the debt or invest.
Investing
% / yr
After fund fees. Not guaranteed.
%
Use 0 for a Roth IRA or other tax-free account.
years
%
$
US student loan interest deduction cap is $2,500 (income limits apply). Leave blank for no limit.
Enter your values to see the result.
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How to use the Pay Off Debt or Invest Calculator
Enter the debt: balance, interest rate and the required monthly payment.
Enter the extra money you have each month to either pay down the debt or invest.
Set the expected return, the tax on gains and how many years to compare.
Tick deductible interest if it applies, such as US student loan interest.
Press Compare plans and check the break-even return and the table at other returns.
How the comparison works
Both plans spend the same monthly budget: required payment + extra money. Each month, interest is added to the debt at APR ÷ 12 and investments grow at (1 + return)1/12 − 1.
Plan A, pay off first: the whole budget goes to the debt. After the payoff month, the whole budget is invested.
Plan B, invest the extra: the required payment goes to the debt and the extra is invested. After the debt is paid off on schedule, the whole budget is invested.
Net worth = investments − tax on gains − remaining debt
Prepaying a loan earns a guaranteed return equal to its interest rate (or the rate × (1 − tax rate) when the interest is deductible). Investing must beat that rate after taxes and fees to come out ahead, and it carries market risk.
Rules of thumb by interest rate
Debt rate
Typical examples
Common approach
Above about 8%
Credit cards, personal loans, some private student loans
Pay off first; few investments reliably beat it
About 4–8%
Car loans, many student loans
Close call: split the extra, or prioritize by risk comfort
Below about 4%
Older low-rate loans
Investing often wins over long periods, with market risk
Any rate
Employer 401(k) match available
Usually capture the full match first
These ranges are general guidelines, not rules. Your results depend on the return you actually earn.
Tips
Use a cautious return. Check the "other investment returns" table to see how the answer changes in weaker markets.
Use 0% tax on gains if you would invest in a Roth IRA or another tax-free account.
Compare the debt's interest rate with the after-tax return you realistically expect. Paying off debt gives a guaranteed return equal to its rate; investing gives an uncertain one. High-interest debt such as credit cards almost always should be paid first. For low-rate debt, investing may come out ahead over long periods, with more risk.
How does this calculator compare the two plans fairly?
Both plans spend the same total each month: the required payment plus your extra money. In plan A the extra goes to the debt, and once it is paid off the full amount is invested. In plan B the extra is invested from day one while the debt is paid on schedule. Net worth at the end is investments after tax minus any debt left.
What is the break-even investment return?
It is the yearly return at which both plans end with the same net worth. If you expect to earn more than this after fees, investing comes out ahead on average; if less, paying off the debt wins. It is usually close to the debt's interest rate, adjusted for taxes.
Should I still get my employer 401(k) match?
Usually yes. An employer match is an immediate, guaranteed return that is hard for any debt payoff to beat, so many people contribute enough to get the full match even while paying down debt. Very high-interest debt is the main exception worth weighing.
Why does risk matter if the numbers say invest?
Investment returns vary a lot from year to year, while debt interest is certain. Paying off debt also frees up monthly cash flow and lowers financial stress. A plan that invests can end up behind if markets do poorly over your period, so check the results at lower returns in the table.
Should I have an emergency fund first?
Most guidance suggests keeping some cash for emergencies before making extra debt payments or investing, so a surprise expense does not land on a credit card. Money sent to a loan is hard to get back, while investments can be sold, though possibly at a loss.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.