Debt Payoff vs. Invest: Which Wins?

Avatar of u/WorkBee
u/WorkBee · Joined Oct 2024

Is paying off debt or investing better for your net worth? See which strategy could lead to greater financial growth over time!

Last update Nov 2024
  • Scenario 1: Invest Now, Pay Debt Slowly
  • Scenario 2: Pay Off, Then Start Investing
  • Which One Is Higher (%)

Watch for when net worth turns positive and grows. The dotted line shows which option yields a higher percentage. Initial negatives reflect debt, while trends reveal which strategy builds more wealth over time.

# Years from Now

Try your numbers:

Enter your debt amount, interest rate, and repayment term. For minimum payment scenarios (such as credit cards), check your statement to find the estimated payoff period based on minimum payments, and enter it under Remaining Amortization.

A =

Enter the amount you'd like to pay toward the debt now. This will reduce the initial debt balance in the payoff scenario but excludes any fees.

B =

Include any fees charged for paying down the debt early. This fee applies only in the payoff scenario, adding to the total cost.

C =
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  • Amount
    Any single amount ($).
  • Cash Flow
    Rent, insurance premium, salary, ...
  • Current Asset
    Real estate, commodity, bonds, ...
  • Installment Loan
    Mortgage, car loan, ...
  • Percentage
    Any percentage value (%).
  • Years / Months
    Any time horizon.
  • Age
    Show "Age" instead of "# Years from Now."
  • Retirement Age (requires Age)
    Enable "Investment Return After Retirement."

Time Value Assumptions

Heads Up!

If you're using Cost Basis (cb) for calculating capital gains:

Please be aware that very few countries currently use inflation-indexed cost basis. Double-check your local tax rules before publishing.

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How is Cash Value calculated?

The net worth in this scenario is the investment account value minus the remaining debt balance, showing how much wealth you accumulate while carrying the debt.

Decisions / Expectations

(Expressions are evaluated at Year 0 only.)

D =
Ẽ =

Calculations

(Expressions are evaluated at every year.)

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Add Decision or Expectation
  • Buy Asset
    Buy an asset growing at its own rate.
  • Take Installment Loan
    Take a mortgage, loan, etc.
  • Invest
    Receive/Spend a lump sum.
  • Expect to Invest
    Expect to receive/spend a lump sum.
  • Expect Monthly Cash Flow
    Expect to receive/spend cash monthly.
  • Expect Yearly Cash Flow
    Expect to receive/spend cash yearly.
  • Define Variable (Numerical)
    Calculate an intermediate value.
Add Intermediate Calculation
  • Define Variable (Numerical)
    Calculate an intermediate value.
  • Define Variable (Cash Flow)
    Calculate a combined cash flow.