Should you invest or pay off debt first?

Debts can be a significant burden both financially and emotionally. It may leave individuals unsure if they should tackle outstanding amounts before investing or use some of their current investments to pay off debt.

For those that have chosen to invest while still having some debt, down periods in the market can lead to regret around this decision and make us feel that we would have been better off taking care of debt first. This isn’t necessarily the case, and when you invest, you need to consider your returns over the long term rather than a market dip that lasts for a couple weeks or months.

In short, choosing between investing or reducing debt will depend on the interest you are being charged on the debt, and how much you expect to make from your investments.

If someone expects to make a significantly higher return from their investments than the interest they need to pay on their debt, they could be better off keeping some money invested.

But investors should remember, while the rate of interest on debt is often set (unless you have something like a variable rate loan), the returns on investments are not guaranteed over any period. In addition to the typical market risk you take on when you invest, there is a risk that your investments won’t outpace your debt.

Two of the most popular types of debt investors face are credit card debt and a mortgage. We’ll explore both below, and if investing could be more effective than paying off the debt first.

Facing credit card debt

There is over £83 billion worth of credit card debt in the UK, averaging £2,836 per household, according to Money Supermarket. While this can be notoriously tricky to get under control, it’s by no means impossible with careful budgeting and planning.

But, it’s not something many people are able to invest their way out of. The average interest rate Brits were charged on a credit card was 21.7% as of the end of September 2026, according to the Bank of England. Over the past five years, the average interest rate has been 20.6%. In comparison, the standard global fund has averaged a return of 8% each year for the past five years*.

Finding extra money to accelerate debt repayments

Here’s how putting extra cash towards credit card payments, versus investing, might work. Let’s say you build up £5,000 worth of credit card debt. Your card has an interest rate of 20%, and you pay your minimum monthly amount of £50. You’ve also found an extra £50 in your budget each month that you could either put towards additional card payments or invest. If you put that money towards paying down your debt, you could decrease your debt to £3,304.30 in five years and pay it off completely in less than 10 years.

But, if you just paid the minimum each month, and invested the other £50, your debt would continue to grow. In five years, it would turn into £8,392. And if your investment of £50 per month grew at 8% each year, not including fees, it would turn into a pot worth £3,649. Even if you used that investment to reduce your borrowings at that point, you’d still be in debt over £4,743.

Instead of the investing approach, many people opt for a balance transfer credit card. If approved, these cards allow you to move your outstanding balance from other cards to a single place, and then often have a period of a year or two of 0% interest. During this time, you can pay off large chunks of the debt without the figure continuing to grow. Once this time is up, the interest rate is usually high.

These cards need to be approached with caution. They can have tricky terms and conditions, such as making the period of 0% interest invalid if you don’t transfer money soon enough, or if you’re late on a payment. They also usually come along with an upfront transfer fee. But if the terms and conditions of the card are understood and followed carefully, it can offer a much more manageable system to relieve credit card debt.

Because the interest rates on credit cards can be high, reducing the amount of debt as soon as possible generally results in the most savings.

Attempting to invest through credit cards

Some people will take on credit card debt to invest and then attempt to outrun that debt with their returns. This is extremely difficult to manage and a very high-risk approach. Investors also need to understand that the rate they see on credit cards is typically not calculated in the same way that an investment return would be.

For example, let’s say Dave is trying to invest his way out of debt. He gets a credit card with an annual interest rate of 20% and believes he can choose an investment that returns more than that. So, he pays £5,000 from his credit card into the investment. However, most credit card companies collect interest monthly. So, in the first month, his credit card will charge him 1.67% on his £5,000. But the following month, instead of charging him 1.67% on the £5,000, they will charge him 1.67% on the £5,000 and 1.67% on the £83.50 that he owes in interest from the previous month. It could be even greater than this, as many credit card companies charge late fees.

By the end of the year, Dave won’t simply owe £6,000 (the original £5,000 plus £1,000 interest). Instead, he’ll owe £6,097 because of that monthly compounding. So, Dave would be paying an interest rate closer to 22% excluding any additional fees, instead of the 20% that’s stated as annual interest.

Investing vs overpaying your mortgage

When it comes to investing versus overpaying your mortgage, there may be a bit more wiggle room for what could provide you with the most money in the long term. According to Rightmove, the average 2-year fixed term mortgage rate is 5.50%, while the average five-year fixed term mortgage is 5.48%.

You can use online mortgage calculators to get a better understanding of your future payments based on the outstanding balance, interest rate, and number of years you have left to pay. These will also typically give you an option to show how much you can overpay your mortgage without a penalty each year. Typically, this is somewhere between 10% and 20% of your total outstanding balance.

If you’re in a position where you’re able to overpay your mortgage, it may be worthwhile to consider investing instead. For example, let’s say you have a remaining mortgage balance of £250,000 at 5.5%, to be paid off over the next 20 years. If you had the funds, you could add on an extra £500 to your mortgage payment each month. Nationwide’s mortgage calculator estimates this could save you £60,277 in interest, and you could pay off your mortgage in just over 13 years instead of 20 years.

You could also choose to invest that £500 each month. If the returns followed what the average global sector fund generated in the past five years (8% a year), you could make nearly £78,000 in returns before fees in that same 13-year time span. Using those figures, investing would leave you better off.

But there are other things to consider. There’s no guarantee that you’d have a near-10% return on your investments, and you could even lose money. You will also have investment charges to pay on top. The past five years have been strong for global markets, so it’s possible that returns could be less going forward. If you made a return of 5% on your investment instead, your interest would stack up to about £31,500, less than the savings from overpaying on your mortgage in our earlier example.

However, consider that interest rates are relatively high right now as well. If they are lower when your current mortgage deal ends, investments could outperform by an even wider margin.

It’s worth running the figures based on your own situation to see what investing the money versus overpaying the mortgage could potentially mean. It’s also worth considering what helps you sleep at night. If having a mortgage is a source of stress for you, or you know you can be jumpy in periods of stress for the markets, you might be better off taking the peace of mind over the possible gains.

*Source: FE Fundinfo IA global sector average