Pay off debt or invest: compare the same budget
By Xavier Carraté · Editor & Researcher
Explore what happens when extra money goes toward an existing debt or into investments while you make required payments. See both the debt still owed and the investment value under the same assumptions.
Compare the same monthly budget
Example amounts are editable. The return is a hypothetical scenario, not a forecast. Use money left after essential bills and your cash reserve.
Use a decimal point, no thousands separators, and up to two decimals. Months must be a whole number from 1 to 600.
The comparison is not ready. If scripts do not load, the worked example and method below remain available.
This calculator does not save or send your entries. Your browser may restore form values when you return. Downloads contain your figures: keep them somewhere private.
Understand the two paths
Both paths start with the same debt and existing investment. You commit the same required payment plus extra every month for the same number of months. The only change is where the extra goes while debt remains. A smaller last debt payment leaves money to invest immediately at that month’s end. After payoff, the entire budget goes to investments in both paths.
The displayed net value counts only this investment minus this debt. It is not your complete household net worth, available cash, or an after-tax liquidation value. A debt can remain at the horizon; it is always subtracted.
A small example you can check without JavaScript
Assume $1,000 of debt at 0%, a $100 required monthly payment, $50 extra, no existing investment, no investment return or fees, and a ten-month horizon. Both paths use $1,500 in total.
- Debt first: pay $150 for six months and $100 in month seven. Invest the $50 left in month seven, then $150 in each of months eight through ten: $500 invested.
- Invest first: pay $100 and invest $50 for all ten months: $500 invested.
Both end with no debt and $500 invested. Ignoring the freed payment or the $50 left in month seven would make the comparison unfair. With positive debt interest, different investment returns or fees, the result can change.
A useful result still leaves questions
- Can you cover essentials and keep an accessible emergency reserve? Money paid toward debt may not be easy to recover.
- Is the payment truly fixed, and does the rate stay fixed? Check required payments and any prepayment restrictions in the contract.
- Would investing involve employer matching, contribution limits, withdrawal restrictions or different taxes? Those benefits and costs need a separate review.
- Does the decision still fit if investments fall? Change the assumed return to zero and a negative value and compare again.
SEC Investor.gov discusses high-interest debt before investing and investment losses. The calculator does not select a security, lender, product or course of action.
How the calculation works
Debt interest is the opening balance multiplied by the nominal annual rate divided by 12, rounded half up to cents each month. Interest is added before payment. The actual debt payment is capped by the balance plus interest. The fixed minimum does not decline with the balance, and extra payments do not recast it. Actual card statements may use daily accrual; this is a monthly comparison model.
The monthly investment rate is (1 + annualReturn / 100)^(1/12) − 1. The monthly fee rate is 1 − (1 − annualFee / 100)^(1/12). Growth is applied to the opening investment and rounded to cents, with half-cent ties away from zero. Fees are applied after growth and rounded half up. Contributions enter afterward and earn no return in that same month.
This explicitly models a proportional portfolio fee, not transaction commissions, flat account charges or a specific fund’s daily expenses. Enter a return before those modeled fees, or set fees to zero when the return is already net of them. Investor.gov explains why investment costs matter.
Returns and fees are constant assumptions; market volatility, order of returns, taxes, inflation, loan origination costs and prepayment penalties are excluded. Do not use this model for variable-rate debt, arrears, deferred interest, a new loan or a contract with a prepayment penalty. Increasing debt remains visible; very large unsupported results are rejected instead of displaying a partial comparison.
The debt rate is nominal; the investment rate is effective. Entering 12% in both fields does not produce exactly the same monthly rate or establish a break-even point.
Your next step
Check the extra against your budget and pay dates. For several debts, use the debt payoff planner. To explore saving without comparing a debt, use the compound interest calculator. See our reproducible snowball and avalanche examples to understand why allocation and timing matter.