Pay off Debt vs. Savings Calculator

If your financial situation allows you to pay off your debt quickly, should you always do it? Not necessarily! You might be able to make money while using the debt as leverage. You’ll need to be disciplined with your minimum payments, know your numbers, and be diligent in monitoring actual rates.

Before making your decision, you need to compare debt APR with savings APR when considering different variables, which is why we’ve prepared a calculator that will take more variables into account.

Pay off Debt vs Savings Calculator

Loan Information

Savings Information

Tax Information

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Effective Loan Interest Rate:
After Tax Loan Interest Rate:
Effective Savings Rate:
After Tax Savings Rate:


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By using this calculator you agree to terms and conditions. These calculators are designed to be informational and educational tools only, and when used alone, do not constitute investment or financial advice. We strongly recommend that you seek the advice of a financial services professional before making any type of investment or deciding on your financial matters. This model is provided as a rough approximation of future financial performance. The results presented by this calculator are hypothetical and may not reflect the actual growth of your own investments. We can't take into account potential lender fees, payoff schedule can be longer than in the estimation. Financialfreedom and its affiliates are not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by these tools. Financialfreedom is not responsible for any human or mechanical errors or omissions.

Compounding Period

“Compound interest is the eighth wonder of the world. He who understands it earns it . . . he who doesn’t . . . pays it.” — Albert Einstein

Compounding relates to how a bank calculates interest. Compounding means that interest is paid or earned on interest.

  • Debt Compound Rate. It’s best to have a compounding period as seldom as possible. For example, a nominal 10% interest rate becomes a real 10.52% rate if compounded daily. This difference might not seem significant, but it can be over time.
  • Savings Compound Rate. It’s best to have compounding as often as possible. Since you are earning interest on interest, your effective savings rate will be higher than the stated one.

You need to determine the compounding period for both your debt and potential savings.

Tax Deductions

Loan Interest Tax Deductible. If you can deduct your loan interest from your taxes, it makes debt less costly, as you are saving on a tax that you would have paid anyway. For example, a 10% loan rate that is tax deductible is only 7% real APR compounded daily. Typically, you can write off interest when you are using debt for business purposes.

Savings Interest Rate Tax. If you must pay tax on your savings or investment income, your effective rate becomes smaller. For example, a 10% savings rate will become 7% after a typical federal tax of 35%.

Your job is to find tax-free investment opportunities and see if you can deduct interest on your loan. That would be your best option.

Other Considerations

  • Minimum and Fixed Payments. If your savings rate is higher than your debt APR, you would want to save money. Don’t forget that you are still required to make minimum or fixed payments to service your debt. You would need to subtract those from your savings contributions when you use our savings calculator.
  • Future Debt APR. You might be considering a 0% Balance Transfer offer. Remember that once it expires you will be paying a very high interest rate, and savings accumulated during the promotional period might not justify it. You have three options:
    • Make a few larger payments toward the end of the promotional period. Doing so will allow you to increase your savings contribution.
    • Make one lump sum payment at the end of the promotional period. This move will maximize your savings potential.
    • Transfer your balance to another credit card with a promotional offer. You will need to take balance transfer fees into account. You can use our Balance Transfer Calculator to see if this option is good for you.