Debt versus liquidity

Pay Off Debt or Keep Cash Calculator

Compare the guaranteed benefit of reducing debt with the after-tax return and liquidity of keeping money in savings.

Used when monthly payment is blank.
Enter principal and interest only for a mortgage.
Adds a separate, uncertain market comparison.

Results will appear after valid values are entered.

Cash applied to debt — Cash above the protected reserve, capped at the debt balance
Guaranteed interest avoided — Estimated over the remaining payoff period
After-tax savings interest — Estimated interest earned by keeping the compared cash
Break-even savings APY — Gross APY needed for the after-tax yield to match the debt cost

Payoff timing and monthly cash flow

The calculator assumes the same scheduled monthly debt payment continues after a lump-sum payment. Once the debt is gone, that payment becomes available for saving, investing, or other spending.

New payoff estimate — Current payoff estimate will appear here
Time saved — Estimated reduction in the remaining payoff period
Monthly cash-flow improvement — Scheduled payment available after the debt is paid

Which strategy is ahead over time?

These results compare estimated net worth under two strategies. One keeps the cash in savings and continues the current debt payment. The other uses cash above the emergency reserve to reduce debt and redirects the monthly payment to savings after payoff.

Difference after 1 year — Strategy comparison
Difference after 5 years — Strategy comparison
Difference after 10 years — Strategy comparison

How this calculator works

Paying debt produces a return equal to the interest that no longer accrues. That benefit is treated as guaranteed when the debt rate and repayment terms are fixed.

Savings interest is reduced using the combined federal and state marginal tax rates entered. This is a simplified estimate. It does not model deductions, exemptions, tax brackets, or account-specific tax treatment.

Cash available for debt Liquid cash - protected emergency reserve
Net-worth comparison Savings and investments - remaining debt

The break-even APY is the gross savings yield needed for its estimated after-tax monthly return to match the monthly cost of the debt. APR and APY are not identical, so the break-even APY may be higher than the stated debt APR even before taxes.

Liquidity is not a rounding error. Money sent to a lender is no longer sitting in the account waiting for the water heater to develop opinions. The calculator protects the emergency reserve entered, but it cannot determine whether that reserve is adequate for a particular household.

When a monthly payment is entered, the calculator assumes that fixed amount continues until payoff and ignores the remaining-term input. For credit cards, enter the amount actually expected to be paid each month rather than a variable minimum-payment formula.

For educational purposes only. Results are estimates and assume monthly debt interest, a constant savings yield, fixed tax rates, and a constant monthly payment. Mortgage-interest deductions, escrow, prepayment penalties, promotional balance-transfer terms, transfer fees, investment taxes, and changing rates are not included. Paying debt can reduce liquidity, and assumed investment returns are not guaranteed.