Should I pay off debt or invest?

Compare your debt's interest rate with the after-tax return you could earn investing. Repaying debt gives a guaranteed return equal to the interest rate saved; investing offers a higher but uncertain return. Clearing high-interest debt, like credit cards, almost always wins.

Why is repaying debt a guaranteed return?

Every dollar of debt you repay saves you that debt's interest rate for certain, with no risk. So paying off a 20% credit card is like earning a risk-free 20%, which beats almost any investment.

When does investing win?

When your expected after-tax investment return is comfortably above your debt rate, and you can tolerate the risk. For low-rate debt like a cheap mortgage, investing the difference may come out ahead over the long run, though not guaranteed.

Debt vs Invest Calculator

This New Zealand calculator helps you decide whether to repay debt or invest spare cash, by comparing the guaranteed return of clearing debt against an expected after-tax investment return. Repaying debt saves the interest for certain; investing offers a higher but uncertain return. You enter your debt rate, expected return and the amount, and the tool shows which leaves you better off over the period.

Spare cash to use

Debt interest rate

Investment return (after tax)

Over (years)

better use of the cash on the numbers

Interest saved by repaying$0

Investment growth$0

Repaying debt is a guaranteed, risk-free return equal to the debt rate; investing is uncertain. If the figures are close, repaying debt usually wins because it carries no risk. Keep an emergency buffer either way. Estimate only, not financial advice.

How it works

The calculator compounds the interest you would save by repaying the debt over the period, against the growth you would get by investing the same amount at your after-tax return. The higher figure is the better use of the cash on the numbers. Crucially, repaying debt is guaranteed and risk-free, so when the two are close, paying down debt is usually the smarter choice.

Worked example

On $10,000, repaying a 12% debt saves about $7,600 of interest over 5 years, while investing at 6% grows by about $3,400. Here repaying the debt wins clearly, and with no risk. For a low 5% mortgage versus a 7% investment, the gap narrows and investing might edge ahead, with risk.

Related calculators

Debt Snowball Calculator: clear debt faster.
Mortgage vs Invest Calculator: mortgage version.
Credit Card Interest Calculator: card interest.
Compound Interest Calculator: investment growth.

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