Should You Pay Off Debt or Invest Your Windfall?

Weigh the pros and cons of paying off debt versus investing your windfall to make the best financial decision.

WhatDoIDo.Now Team

2/28/2025

Should You Pay Off Debt or Invest Your Windfall?

A windfall lands in your lap—maybe a bonus, inheritance, or lottery win. Now what? Do you pay off debt or invest it? It’s a classic dilemma with no universal answer. In this post, we’ll weigh the pros and cons, run the numbers, and help you choose the smarter move for your money. Let’s dive into this financial face-off!

Pay Off Debt: The Sure Thing

Why It Works

Guaranteed Return: Ditch a 10% APR debt, and you “earn” 10% by not paying interest.
Stress Relief: Debt-free living = lighter shoulders.
Cash Flow Boost: No payments mean more money monthly.

The Catch

Missed Gains: Your windfall isn’t growing in the market.
Low Rates?: If debt’s cheap (e.g., 3% mortgage), investing might beat it.

Example: A $10,000 windfall clears a 15% credit card. You can save up to $1,500/year—hard to beat!

Invest Your Windfall: The Growth Play

Why It’s Tempting

Big Potential: A 7% stock market return turns $10,000 into $19,672 in 10 years.
Beat Inflation: Investments keep your money’s value strong.
Compounding Magic: Start early, win big later.

The Risk

Market Dips: You could lose cash short-term.
Debt Drag: Interest keeps piling up.

Example: That $10,000 at 7% grows, but a lingering 8% debt eats into gains.

Crunching the Numbers

Windfall: $10,000
Debt: $10,000 at 8% APR
Invest: 7% annual return

Debt Payoff: Save $4,559 in interest over 10 years. Use the freed up cash to pay off other debt or invest the extra cash.

Invest: Grows to $19,672, but you still owe $10,000 + interest. Net gain? You're actually behind by $1,321 after 10 years—even if the market behaves.

Key takeaway: If debt interest beats investment returns, pay it off. Run your scenario with the Windfall Calculator.