Extra cash can pay down debt or go into investments. See which builds more net worth.
This calculator compares paying extra toward debt against investing the same money over a set period.
Paying down debt earns a guaranteed return equal to the loan's interest rate, since every dollar of principal removed avoids that interest for good. Investing offers a potentially higher return, but it is uncertain and can be negative in any given year. The tool contrasts the interest you would avoid by paying down debt with the balance you might build by investing at your expected return, using the same monthly amount and time frame.
The result favors debt paydown when its rate is high and steady, and investing when expected returns clearly exceed the debt rate and you can tolerate risk. It does not model taxes, employer matches on retirement accounts, or the psychological value of being debt free. It also assumes a constant investment return rather than realistic market swings. Use this as a starting point for a decision, not as financial advice.
Yes, reducing a loan balance saves the interest you would otherwise owe, and that saving is certain unlike investment returns.
If your expected after-tax return is comfortably above your debt rate and you can accept the risk, investing may build more wealth, though it is not guaranteed.
No, a match can dramatically favor investing in that account and is not modeled here, so consider it separately.
See the exact formula and a worked example on our methodology page.