Debt vs invest

calculator

Should this money clear a debt or buy an index fund?

Compares a guaranteed return against an expected one on a risk-adjusted basis, accounting for tax on both sides.

The two options

Debt interest rate (APR)6.00%

Expected investment return7.00%

Nominal, before tax. Our default sits below the long-run US average deliberately.

Tax on investment gains0%

Zero inside a tax-advantaged account.

Debt interest is tax deductible

Some mortgages and student loans, depending on your jurisdiction.

I have unclaimed employer match

If so, this outranks both options.

Neither — collect the match first

An employer match is an immediate return on the money you contribute, commonly 50% or 100%. No debt rate and no expected portfolio return competes with that. Contribute enough to capture the full match, then come back to this comparison for whatever is left over.

The comparison

Guaranteed return (repay): 6.0%
Expected return (invest): 7.0%
Edge to investing: 1.0%

Too close to call — lean to the debt

The two are within noise of each other, and a certain return is worth more than an uncertain one of the same size.

How this was reasoned

You have unclaimed employer match. Contribute to the match first — an instant return on contribution no debt rate beats.
The two are within noise of each other. A certain return is worth more than an uncertain one of the same size, so lean toward the debt.

Why this matters

The mistake people make here is treating an expected return and a guaranteed return as comparable numbers. A certain 6% and an expected 7% are not one point apart in any meaningful sense: the second carries a distribution wide enough that a full decade of underperformance is unremarkable.

That is why this tool requires roughly a two-point expected edge before it recommends investing. Below that, the premium does not compensate for the risk — you are being paid very little to accept a genuinely uncertain outcome.

Two things this deliberately does not price: the liquidity you give up by paying into a mortgage you cannot easily draw back out, and the psychological value of being debt free, which shows up in the behavioural data even where the arithmetic marginally favours investing. Both are real. Both are yours to weigh.