Calculator
Debt Payoff Calculator: Should You Pay Off Mortgage or Invest?
-
-
Copied link to Clipboard!
Having a credit union savings account is important, especially when the savings are part of an emergency fund or a hedge against a loss of income. However, when you also want to manage debt, in the form of an outstanding credit card balance or loan, you might want to consider your debt repayment strategies and whether you are better off using the money you have in savings to pay down debt. Whether it makes sense or not is determined by the interest rate you are earning on your savings versus the loan rates you are being charged on your outstanding loan balance. The difference between earning interest and paying it should give you a good indication of where you can get the best return.
Invest vs. pay off debt FAQs
Start by comparing your debt's interest rate to the potential investment return. Consider your financial goals, risk tolerance, and any tax implications. If your debt carries a high interest rate, paying it off may offer a guaranteed return. For lower-interest debts, investing could lead to more substantial long-term growth.
If your debt's interest rate is higher than what you expect to earn from investments, focusing on debt repayment may make more financial sense. But if your investments can earn more than your debt costs, investing helps you build wealth faster. The calculator can help weigh those tradeoffs.
Yes—some debts, like mortgages or student loans, may offer tax-deductible interest. Certain investments are taxed differently based on the account type and gains. Understanding how taxes factor into both strategies can help you make the most of your money. A tax advisor can offer guidance specific to your situation.
Paying off debt offers a guaranteed return by eliminating interest costs. Investing carries risk but offers the potential for greater growth. If you prefer stability and predictable outcomes, you may prioritize debt repayment. If you're comfortable with market fluctuations, investing could align better with your strategy.