You have some money left over each month. Put it on the debt, or invest it? Compare both plans with your own numbers, and see the return investing would need just to break even.
Use the APR from your statement. Credit cards and overdrafts are often 15–25%, mortgages much lower.
A guess, not a promise. Use a return after fees; some years are negative.
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How to use the calculator
Enter the Debt balance and the Minimum payment a month from your latest statement. With several debts, start with the most expensive one.
Set the Debt interest rate per year. Use the APR (annual percentage rate) shown on the statement or contract.
Enter the Extra money each month: what's left after your budget, on top of the minimum.
Set the Expected investment return per year after fees. Try a cautious number first, then a hopeful one.
Choose how many years to Compare over, and set Tax on investment gains to your country's rate if you know it.
Read which plan comes out ahead, the side-by-side table, the break-even return and the line that shows what happens if returns are 3 points lower.
What it's good for
Compares both plans with exactly the same monthly money, so the comparison is fair.
Shows the break-even return: the number your investments must beat, which is often higher than people expect.
Includes tax on gains, which makes paying off debt more attractive than a simple rate comparison suggests.
Shows a lower-return case next to your guess, so one optimistic number doesn't decide for you.
Where it falls short
Uses one fixed return every year. Real markets go up and down, and a bad first few years hurts the investing plan most.
Looks at one debt at a time. For several debts, plan the order with the debt payoff calculator.
Leaves out early-repayment fees, employer pension matches and tax relief on pension payments, which can change the answer.
Can't weigh how it feels to be debt-free, or how much risk you can live with. Those matter too.
How it's calculated
Formula.Both plans spend the same each month (minimum + extra). Every month: debt = debt × (1 + rate ÷ 12) − payment; investments = investments × (1 + return ÷ 12) + whatever wasn't needed for the debt. Debt first: the whole amount goes to the debt until it's gone. Invest: only the minimum goes to the debt. At the end, tax is taken from investment growth, and net worth = investments after tax − debt still owed. The break-even return is found by trying returns until both plans end level.
Worked example.A 5,000 card at 20% with a 150 minimum and 200 extra a month, compared over 10 years at a 6% return: debt first clears the card in 17 months and ends with 47,324; investing the extra ends with 45,511 and pays 2,359 interest instead of 759. Break-even return: 20%. A 150,000 mortgage at 3% with 800 a month and 300 extra: investing comes out ahead by 7,241 at 6%, break-even 3%.
Assumptions.
One fixed debt rate and one fixed investment return for the whole period.
Payments and investments happen at the end of each month; no fees or early-repayment charges.
Tax on gains is charged once at the end, on growth only. Real tax rules differ by country and account type.
Every euro you pay off a 20% card stops costing you 20% a year. That's a return of 20%, with no risk and no tax on it. To beat it by investing, your investments would need to earn more than 20% a year after costs and tax, every year, which almost nothing does reliably. That's why the calculator usually says "debt first" for cards, overdrafts and store credit.
For cheap debt the picture flips. A mortgage at 3% is beaten by many long-term investment portfolios on average, but only on average. The gap you see is what happens if the return you typed actually arrives; the line under it shows what happens if it's 3 points lower.
Before you use either plan
Keep a starter cushion first. With no savings, the next surprise goes straight back on the card. About one month of essential costs is a sensible start (emergency fund calculator).
Take free money. If an employer adds to your pension when you pay in, that match is usually worth more than paying off even expensive debt. Pay in enough to get the full match.
Check early-repayment fees. Some loans and mortgages charge for paying early; the calculator doesn't include them.
Don't stop the minimums. Both plans pay every minimum on time. Missing payments costs fees and hurts your credit record.
How to read the result
Debt first puts the minimum plus the extra on the debt; when the debt is gone, the whole amount is invested. Invest the extra pays only the minimum and invests the extra from the first month; when the debt is gone, the freed-up minimum is invested too. Both plans spend exactly the same money each month, so the comparison is fair. The net worth from this money is what your investments are worth after tax, minus any debt still owed at the end.
The break-even return is the yearly return at which both plans end level. If your investments earn less than that, paying off the debt wins. Without tax it equals the debt's interest rate; tax on gains pushes it higher.
Questions
Should I pay off debt or invest?
As a rule of thumb: debt costing more than about 6–8% a year (cards, overdrafts, most personal loans) first, after a small cushion. Cheap debt like many mortgages can be paid at the normal pace while you invest. The calculator shows the numbers for your case; the decision also depends on how much risk you can live with.
Why does "debt first" sometimes win even when my expected return is higher than the rate?
Tax. Debt interest you avoid isn't taxed, while investment gains often are. Set the tax slider to your country's rate on gains and see how the break-even return moves.
What if I have several debts?
Enter the most expensive one here. To plan the order for all of them, use the debt payoff calculator (avalanche or snowball).
Is this advice?
No. It's the maths of two plans with the numbers you enter. Returns aren't guaranteed and your situation may have details the calculator can't see.
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Sources · last checked
Formula: see "How it's calculated" above; tested against the worked example shown there.
Last reviewed
Education, not advice. I'm not a financial adviser and I don't know your situation. These tools show the maths behind common rules of thumb; check important decisions with a qualified professional. Full disclaimer.
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