Should you pay off a 15% loan or invest?
Paying off a 15% loan earns you a guaranteed 15% return — no market, no risk. Investing offers a higher expected return (~7% in stocks) but with real risk. So the decision comes down to one comparison: 15% certain vs ~7% risky.
The rule of thumb, and where it breaks
A useful default: pay off any loan above about 6–7% before investing in a taxable brokerage, because few investments reliably beat that after tax and risk. Below that, investing tends to win on average. But the rule bends:
- Guaranteed beats risky. The loan payoff has zero volatility. Getting the same expected return in the market requires taking real risk — a bad decade can wipe out the paper advantage.
- Taxes and match come first. A 401(k) match (~100% instant) and tax-advantaged space usually beat both paying off a moderate loan and taxable investing.
- Behavior and cash flow. Clearing a loan frees up monthly cash and removes a psychological weight — worth a lot even when investing edges ahead on a spreadsheet.
Where your rate sits on the line
The whole decision is one comparison — your guaranteed rate against a ~7% expected market return — so it is worth seeing the entire ladder at once. On $50,000 over 30 years, 7% is the dead heat, and 8% is the first rate where clearing the debt clearly beats investing:
| Loan rate | Worth of paying it off | Worth of investing | Ahead by |
|---|---|---|---|
| 3% | $121,363 | $380,613 | Invest +$259,250 |
| 4% | $162,170 | $380,613 | Invest +$218,443 |
| 5% | $216,097 | $380,613 | Invest +$164,516 |
| 6% | $287,175 | $380,613 | Invest +$93,438 |
| 7% | $380,613 | $380,613 | Dead heat |
| 8% | $503,133 | $380,613 | Pay off +$122,520 |
| 9% | $663,384 | $380,613 | Pay off +$282,771 |
| 10% | $872,470 | $380,613 | Pay off +$491,857 |
| 12% | $1,497,996 | $380,613 | Pay off +$1,117,383 |
| 15% this page | $3,310,589 | $380,613 | Pay off +$2,929,976 |
The payoff column is a certainty; the investing column is an average outcome with real risk around it. A tie on this table is not a tie in practice — the guaranteed side wins ties.
This compares a guaranteed loan rate to a risky ~7% expected return; it isn't tax advice. High-interest debt (credit cards, many personal loans) should almost always be cleared before investing. Model your full picture in the calculator.
Credit-card territory: the avalanche and the reset button
A 15% rate is squarely in credit-card range, and at that level the debt is expensive enough that clearing it comes before nearly every other use of a spare dollar — the main exceptions being the employer match and a thin emergency fund. No mainstream investment is expected to out-earn 15% after tax with any consistency, so paying it off is the highest-certainty return available to you.
Two tactics make the payoff faster:
- The avalanche method: if you carry several balances, direct extra payments at the highest-rate one while paying minimums on the rest. It clears the most costly interest soonest and minimizes what you pay overall.
- Refinancing or consolidating: moving a 15% balance to a lower-rate personal loan, or a promotional balance transfer, can cut the rate sharply — but it only helps if you avoid new charges and actually retire the balance before any teaser rate ends.
Lowering the rate and attacking the balance are complementary, not either-or. The goal is the same: stop paying 15% for borrowed money as fast as you can.
Common questions
Should I pay off a 15% loan or invest?
At 15%, pay the loan off first. Its guaranteed 15% return beats a typical ~7% risky stock return once you adjust for risk, and it frees up cash flow immediately.
What loan interest rate is worth paying off before investing?
A common threshold is about 6–7%. Above it, paying off the loan is a hard-to-beat guaranteed return; below it, investing tends to build more wealth on average. Always clear high-interest debt (credit cards) first.
Does paying off debt count as a return?
Yes — eliminating a 15% loan is economically identical to earning a guaranteed, tax-free 15% on that money. That's why high-rate debt is one of the best "investments" available.