Pay Off Debt or Invest? The Rate Test Settles It
Published 2026 ? 4 min read
Should extra money kill your debt or grow in the market? There's a clean answer: compare your debt's interest rate to what you'd expect to earn investing. Whichever is higher wins ? with one emotional exception.
The rate test
If your debt costs 22% (credit card), paying it off is a guaranteed 22% return ? no investment reliably matches that. If your debt costs 4% (low mortgage), investing at a long-term 7-8% expectation usually wins.
The general rules
- Above ~7-8% debt: pay it off first. The guaranteed return beats the market's expected return.
- Below ~5% debt: investing likely wins over a long horizon.
- In between: split the difference or choose based on your risk comfort.
The emotional exception
If carrying debt keeps you up at night, the peace of being debt-free has real value that math can't price. There's nothing wrong with paying off a 6% loan early for that reason alone.
Run the numbers
Use the credit card payoff calculator to see the interest you're fighting, then the investment return calculator for what the same money could earn ? and let the rate test decide.