Pay off the debt or invest?
Compare what your money saves if it goes to the debt with what it earns if it is invested, after tax.
The debt
R$
%
The money
R$
If you invest
%
| Debt costs | 19.56% | R$ 1,956.18 |
| Your investment earns | 9.90% | R$ 990.00 |
How paying off a debt compares with investing
What the page compares
When there is spare money and an open debt, the two options look different but measure the same thing: what the money earns in a year. Putting the money into the debt earns the debt's rate, free of tax, because interest you stop paying is not income. Investing earns the investment's rate, but only what is left after income tax counts. The page puts the two rates side by side and shows, in money, what each choice leaves in your pocket over the period you set.
What you enter
- The debt's balance and rate. Use the contract's total effective cost, per month or per year. The nominal rate leaves the charges out and makes the debt look cheaper than it is, which is why the page accepts effective rates only.
- The money available and the period of the comparison, in months. Use the number of instalments still to pay, because the calculation assumes the debt's rate holds for that whole period.
- How the investment pays: a fixed rate, a share of an index (such as 110% of the CDI) or an index plus a spread, the kind of product when the country has a list, and whether the return is taxed or exempt. The index level comes from the latest quote the system has and can be changed. With no quote the field stays empty and the page says the rate is unknown, instead of comparing the debt with a number nobody calculated.
How the calculation works
The debt's annual rate is converted into a monthly rate and compounded over the months of the period: the interest you stop paying is the amount put into the debt times that factor minus one. The investment is projected over the days the money stays invested, and the tax comes from the country's table, the same one as on the investments page. For a taxed investment held for a year, Brazil charges 17.5% income tax on the return. If the money is larger than the debt's balance, only the balance enters the comparison, and the remainder, which can only be invested, is shown apart.
A worked example
A debt of R$ 10,000.00 at 1.5% a month, which is 19.56% a year, compared over 12 months with the same R$ 10,000.00 in a fixed-rate deposit paying 12% a year, taxed:
| Measure | Pay off the debt | Invest |
|---|---|---|
| Rate per year | 19.56% | 12.00% gross |
| Interest avoided or gross return | R$ 1,956.18 | R$ 1,200.00 |
| Income tax | R$ 0.00 | R$ 210.00 |
| Gain in your pocket | R$ 1,956.18 | R$ 990.00 |
| Net rate per year | 19.56% | 9.90% |
Paying off wins by R$ 966.18. With a cheap debt the answer flips: at 0.5% a month, or 6.17% a year, the same R$ 10,000.00 stops R$ 616.78 of interest in 12 months, while an exempt deposit at 10.80% a year earns R$ 1,080.00, and investing wins by R$ 463.22. The rule that comes out of the two cases is simple: when the debt's rate is above the investment's net return, paying off wins.
Mistakes to avoid
- Comparing the debt's nominal rate with the investment's net return. Always compare rates of the same kind: effective with effective, after tax.
- Forgetting the charges. Fees, insurance and credit tax are part of the total effective cost, not of the interest rate the contract highlights.
- Counting money you may need. An emergency fund is outside this calculation: if it is spent on the debt and the need appears, the debt comes back, and costlier.
- Taking the projection as a promise. An indexed investment depends on the index, which moves.
- Using a period longer than the debt's. If six instalments are left, compare over six months.
What the page does not cover
The comparison does not say whether it is better to shorten the term or lower the instalment when paying down, which the simulation with extra payments shows, it does not model market risk or withdrawal lock-ups, and it does not know your tax situation beyond the country's tables. It is a calculation under the assumptions it declares, not a recommendation.
Where to go next
The guide on paying off a debt or investing explains why the answer so often favours paying off an expensive debt, and the guide on the total effective cost shows how to get the right number for your contract. To see how much an extra payment saves on your own schedule, use the simulation; the methodology page describes how the calculations are done.