To Pay Down Debt or Invest?

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There are often a lot of competing interests when it comes to our money. We’re interested in getting out of debt, but we also want to come up with a down payment for our first home. We want to get rid of our credit card debt, but we also want to save for retirement. Which is the right thing to do?

Use the calculator below to find out just what we recommend based on several factors, including the interest of your debt and the return you anticipate from your investment.

To Pay Down Debt Or Invest?

What kind of debt do you want to run the numbers on?

Is the interest on this debt tax deductible?

What is the interest rate on your debt?

What are you considering investing for?

Is the return for this investment goal taxable?

What's your anticipated rate of return?

Typical interest on a savings account: 1.5%
Inflation: 3%
Historic investment return: 8%

What's your marginal tax bracket?

Not sure? Play it safe with 25%

Diagnosis

8%
Your after-tax
cost of debt
9%
Your after-tax return
on investments
In this scenario, there is no significant difference between accelerating your debt repayment and investing. You should choose which feels right for you.

Things To Keep In Mind

  • Do you have a big purchase coming up for which it would be better to improve your credit score by lowering your debt?
  • What will give you greater peace of mind?
  • There is no guarantee when it comes to investing. Markets can be volatile, whereas the interest on debt is known.
  • Check to make sure your emergency savings fund is intact before using extra funds to accelerate debt payment or invest.
In this scenario, the after-tax cost of your debt is greater than the after-tax return on your investments. You should consider using extra funds to accelerate your debt repayment before you invest.

Things To Keep In Mind

  • Check to make sure your emergency savings fund is intact before using extra funds to accelerate debt repayment or to invest.
In this scenario, the after-tax cost of your debt is less than the after-tax return on your investments. You should consider using any extra funds to invest before accelerating your debt repayment.

Things To Keep In Mind

  • Don't forget to always make your minimum debt payment!
  • Do you have a big purchase coming up where for which it would be better to improve your credit score by lowering your debt?
  • There is no guarantee when it comes to investing and markets can be volatile. In contrast, the interest on debt is known.
  • Check to make sure your emergency savings fund is intact before using extra funds to accelerate debt repayment or to invest.
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If you want to rejigger your priorities based on this calculator’s recommendations, head into the Budgeting Tool now to reallocate your debt repayment or savings plan.