OpenFinancial
Financial priority

Should I pay off debt or invest my extra money?

This feels like a question about discipline versus ambition. It isn't. It's a subtraction problem with one number on each side, and there's a threshold where the answer flips.

See the priority order

Last reviewed 16 September 2026

The short answer

Compare your debt's rate to the market's expected return. Above roughly 8%, pay the debt — a guaranteed 8% beats an uncertain 10%. Below 5%, invest. Between them, either is defensible. One thing outranks both: an employer 401(k) match, which returns 50% or more immediately.S8

Certain versus expected

Paying off debt returns exactly its interest rate, guaranteed. Investing returns whatever the market does — about 10.1% a year nominally over the last century, roughly 6.8% after inflation, with long stretches of loss in between.S7 So the comparison isn't debt versus investing. It's a certain return at your rate against an uncertain one at the market's.

Where the line sits

Your debt's interest rate decides it

The debt rate threshold ← Invest either Pay the debt → 5% 8% 0%8%25% mortgage 6.76% credit card 22.15% The 8% line sits below the market's 10.1% average on purpose: a guaranteed return deserves a premium over an expected one. Reasonable people put it anywhere from 6% to 10%. What matters is having a line at all.
Credit card figure: 22.15% average APR on accounts assessed interest, Q2 2026.S6 Market returns are historical averages, not forecasts — any single year can be sharply negative.

Where most advice goes wrong: it treats the market's average return as a floor. The S&P 500 has averaged about 10.1% since 1928 — and has also lost more than 20% in a single year eleven times. An average is what you get across thirty years, not what you get next year while a 22% balance compounds.

What $6,000 costs you either way

Percentages don't move people. Dollars do.

$6,000, one year

Carried on a credit card versus invested

Cost of carrying debt versus expected investment return Interest you pay — certain $1,329 Expected market return — uncertain $605 $409 after inflation Guaranteed advantage of paying the debt first: $724 a year
22.15% APRS6 against 10.09% nominal and 6.81% real annualized returns since 1928.S7 Illustrative example, not a projection of your results.

The priority ladder

If you want one order that holds for almost everyone, this is it. Work down it, not across it.

What to fund first

Ranked by return, highest first

Funding priority ladder 1  Capture the full employer match Typically 50% of contributions up to 6% of pay 50–100% 2  One month of expenses in cash Not six — one. Stops the next repair becoming new debt. insurance 3  Clear anything above 8% Highest rate first is optimal; smallest balance first still beats quitting. 8–25% 4  Finish the emergency fund Three to six months, in high-yield savings. ~4% 5  Max out tax-advantaged investing $24,500 in a 401(k) and $7,500 in an IRA for 2026. ~10% 6  Leave the cheap debt alone A mortgage from the 2020-21 rate trough is not an emergency. <5%
Match figures from Vanguard's How America Saves 2026: average match 4.7% of pay, most common formula 50% up to 6%.S8 2026 contribution limits per IRS.S16

On a $70,000 salary, contributing $4,200 to collect a $2,100 match is a 50% return on the day it lands. Nothing else on this page competes with that.

Where your debt sits

Debt typeCurrent averageSourceVerdict
Credit card, carrying a balance22.15%Fed G.19S6Pay it. Not close.
Personal loan, 24-month11.86%Fed G.19S22Pay it.
Federal student loan, 2026–276.52%Dept. of EducationS23Borderline. Don't rush.
Auto loan, prime tier6.23%ExperianS21Borderline. Check your rate.
Mortgage, new6.76%Freddie MacS1Investing instead is defensible.

Published averages as of the dates in the source register. Subprime auto and private student loans run materially higher than the figures above, and payday lending higher again. Your own rate is on your statement and is the only one that decides your answer.

Three complications worth naming

Tax treatment narrows the gaps. Mortgage interest may be deductible if you itemize; retirement contributions may cut this year's taxable income. Neither usually changes the ranking, but both tighten it.

Certainty has real value. Expected value says invest at 6%. If carrying that debt costs you sleep and makes every other decision worse, paying it off is buying something a spreadsheet can't price. Just don't call it the optimal move when it's the comfortable one.

Don't stop investing entirely. A three-year total pause on retirement contributions to clear debt forfeits three years of compounding and the match with it. Take the match, then aim the surplus at the debt.