Save vs Pay Off Debt Calculator

A common heuristic compares debt interest rates to expected savings returns: pay debt above your savings return, save otherwise. At 300/month with 22% debt rate vs 5% savings return, debt repayment produces a larger cash position. At 6% debt vs 7% savings return, the gap narrows and preference may shift. This tool calculates the cash position across your horizon under each scenario.

Decision comparator.

Quick example

With monthly extra cash of 300 and expected savings return of 5% (plus debt interest rate of 8% and horizon of 10), the calculation projects 8,299.13. Change any figure and watch the output shift — observing the pattern often clarifies trade-offs more than memorising the formula.

Which inputs matter most

You enter Monthly Extra Cash, Expected Savings Return, Debt Interest Rate, and Horizon. Two inputs typically drive the outcome one way or the other. Identify which ones matter most by adjusting each value past a round threshold and observing whether the higher cash position changes.

What's happening under the hood

The calculation projects future value of the same monthly amount compounded at savings rate versus debt rate. The larger figure indicates which scenario produces more cash. The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

Why the number matters

Saving without a target can lack direction — a concrete figure to work toward clarifies the scale of the trade-off and supports planning.

What this doesn't capture

The calculation assumes a steady savings rate and a stable interest rate. Real saving journeys include emergencies, windfalls, and rate changes — especially in easy-access products. The figure indicates a direction of travel under constant conditions, not outcomes across changing circumstances.

Worked example

Suppose you have 250 in extra monthly cash, a savings account earning 4% annually, and an outstanding debt at 9% interest. Your horizon is 5 years.

• Savings path: Putting 250 per month into savings at 4% annual return grows to approximately 15,733 in principal and accumulated interest over 5 years.
• Debt repayment path: Applying 250 per month to debt at 9% annual interest reduces your debt balance by a larger amount in real terms because each payment stops future interest accrual on that principal.

The calculator models both paths and displays the resulting cash position for each. The difference between them — often hundreds in your currency — illustrates the financial weight of the choice.

Common scenarios where this matters

This calculation is most useful when:

• You have a debt balance (credit card, loan, overdraft) and also want to build emergency savings.
• Your debt interest rate and savings return rate are relatively close, making the choice unclear.
• You are planning a multi-year financial strategy and want to model two distinct paths.
• You want a numerical illustration of how interest rates shape outcomes over time.

What the result does and does not show

The result shows: A projected cash position under two static scenarios, using the rates and monthly amount you enter. It illustrates which path generates a larger numerical outcome over your chosen timeframe.

The result does not show: Tax effects, fees, payment penalties, income volatility, or the psychological impact of carrying debt. It also assumes you can maintain the same monthly contribution under both paths, which may not reflect real circumstances. The calculation is for educational illustration and modelling only.