Pay Off Debt vs. Invest Your Windfall
Example: Windfall (after tax): 80000 $ · Debt balance to pay off: 80000 $ · Debt interest rate: 6.5 % · Expected investment return: 7 % · Marginal tax rate: 22 % · Comparison horizon: 10 years
| Pay debt wins? (1=yes, 0=invest wins) | 0 |
| Dollar advantage of winning path | $84,134 |
| Pay-debt path total value | $52,000 |
| Invest-everything path total value | $136,134 |
Worked example
A $80,000 windfall against a 6.5% mortgage, compared with investing at 7% over 10 years: paying off the mortgage saves $52,000 in interest and leaves $0 to invest, for a Path A total of $52,000. Investing $80,000 at 7% after 22% capital-gains drag grows to roughly $137,000 for Path B. The invest path wins by ~$85,000 in this example — but flip the rates (8% debt vs 6% return) and pay-off wins decisively. The engine shows you which side the math falls on for your numbers.
Frequently asked questions
Why does a 6.5% mortgage sometimes lose to a 7% market return?
Guaranteed debt elimination versus uncertain market returns. The calculator treats investment returns as expected, not guaranteed. Many financial planners recommend paying off debt when the rates are within 1–2 percentage points because market returns vary by year.
Is mortgage interest still tax-deductible?
Only for taxpayers who itemize and whose mortgage interest plus other deductions exceed the 2024 standard deduction ($14,600 single / $29,200 married). Most Americans no longer itemize after the 2017 tax law. This tool conservatively assumes no deduction.
What about credit card debt?
At 20–29% APR, credit card debt almost always beats any realistic investment return. The pay-debt path wins decisively when the debt rate exceeds 10%. Use this tool to confirm with your exact numbers.
Should I keep any emergency fund before paying debt?
Most planners recommend keeping 3–6 months of expenses liquid before accelerating debt payoff. Paying off a mortgage only to face credit card debt during a job loss reverses the win.