Should I Pay Off Debt or Save?

If your debt's interest rate is higher than the return you'd earn saving that money, paying off debt first wins mathematically. A credit card at 20% APR costs more than almost any savings account or ISA pays. Clearing that debt is a guaranteed, tax-free 20% return.

The break-even point is roughly when your debt interest rate equals your expected savings or investment return. At that point the two strategies are equivalent, and personal factors like peace of mind or the need for an accessible emergency fund should guide your decision.

This calculator runs both strategies forward over 10 years using compound monthly interest. Strategy A pays off your debt first, then redirects every pound into savings. Strategy B ignores the debt and saves everything, leaving the debt to grow. The 'net benefit' figure is the difference in your overall wealth after 10 years.

Because debt interest compounds against you at the same rate savings compound for you, even a small gap between the two rates creates a surprisingly large difference over time. A debt at 18.9% vs savings at 4.5% means the pay-debt strategy wins by thousands over a decade.

There are cases where saving before paying debt is the smarter move. If you have no emergency fund, building 3 months of expenses in accessible savings first protects you from going further into debt when unexpected costs hit. Your employer may also match pension contributions - that is effectively a 50-100% instant return, almost always worth prioritising over paying down cheap debt.

Some debt, like student loans in the UK, uses an income-contingent repayment model rather than compounding interest in the traditional sense. In those cases the standard maths does not apply and saving or investing alongside repayments can be the better strategy.