A guaranteed return from paying debt versus an uncertain one from investing, see the gap.
A pay-off-or-invest calculator compares putting extra money toward debt with investing it, weighing a guaranteed return from debt paydown against a higher but uncertain return from investing.
Paying down a debt earns a guaranteed, risk-free return equal to its interest rate, eliminate an 18% credit card and you've 'earned' 18% for certain. Investing may earn more, but that return is uncertain and can be negative in any given year. The comparison hinges on the debt's rate versus your expected investment return, adjusted for risk.
A common approach: always capture an employer 401(k) match first (an instant return), then attack high-interest debt like credit cards, then invest for long-term goals while paying low-rate debt on schedule. High-rate debt is usually the clear winner because few investments reliably beat a guaranteed high-teens return, and the certainty has real value.
Compare the debt's rate to your expected investment return. High-rate debt usually wins because its return is guaranteed; low-rate debt may lose to investing.
Eliminating a debt saves its interest rate for certain, with no market risk, unlike an investment, whose return is uncertain.
Typically: capture any 401(k) match, then pay off high-interest debt, then invest while servicing low-rate debt on schedule.
See the exact formula and a worked example on our methodology page.