Credit cards, auto loans, personal loans: extra cash could pay any of them down faster, or go into an investment account. Compare both strategies for any debt type and interest rate.
This tool works for any type of installment or revolving debt: credit cards, auto loans, personal loans, or anything else with a balance and an interest rate. Option A puts extra cash toward the balance each month, paying it off faster and reducing total interest paid. Option B keeps the standard payment and invests that same extra amount instead. Every slider on this page has a matching number field: drag to explore, or type exact figures if you already know your numbers. The calculator tracks both paths and adds up your remaining debt and any invested cash at the end of your timeline to see which strategy leaves you further ahead.
Every extra dollar you put toward debt is a dollar that stops earning a market return and instead earns a guaranteed return equal to that debt's interest rate, since it is interest you no longer have to pay. Paying down debt faster is effectively a risk free investment at that rate. Investing the dollar instead is a bet that market returns will outpace it. This is why the interest rate on the debt matters more than the dollar amount, and why the "Extra Interest Cost to Beat" figure above, the real dollar cost of choosing not to pay extra, grows fastest on high rate debt like credit cards.
The single biggest input in this calculator is the interest rate, and rates vary enormously across debt types. That range is exactly why the "right" answer is so different for a credit card than for a mortgage.
| Debt Type | Typical Rate Range | General Takeaway |
|---|---|---|
| Credit cards | 18% to 29% | Almost always worth paying down aggressively before investing. |
| Personal loans | 8% to 20% | Often still favors paying down debt over investing. |
| Auto loans | 5% to 12% | Closer call, depends heavily on your return assumption. |
| Federal student loans | 4% to 8% | Frequently a reasonable case for investing instead. |
| Mortgages | 5% to 8% | Often favors investing, especially with a tax deduction. |
Comparing a guaranteed return against an expected return, and reasoning about debt versus investment tradeoffs, are recurring themes on the CFP exam and in the quantitative sections of the CFA Level 1 exam. If you are pursuing a securities license more broadly, this same opportunity cost logic appears throughout the SIE exam and Series 65.
For debt with rates above what you could reasonably expect to earn investing, such as most credit cards, paying it down aggressively is almost always the stronger financial choice, since the guaranteed return equals that high rate.
Most financial planners recommend keeping at least a small emergency fund even while aggressively paying down debt, since relying entirely on credit to cover an unexpected expense can undo the progress made and add new high interest balances.
That depends on your portfolio and risk tolerance. A diversified stock portfolio has historically returned somewhere in the 7 to 10 percent range annually over long periods, before inflation, though any given year or decade can vary significantly. Use a conservative assumption if you want a cautious read on the comparison.
Yes. Each slider has a paired number input. Type directly into any gold field to enter a precise figure, and the slider along with all results update immediately.
Opportunity cost math like this shows up directly on CFP and CFA exams. Practice for free.
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