Debt Payoff vs Investing: Avalanche, Snowball, and the Third Option
Most debt advice pretends there are two strategies: avalanche and snowball. There’s a third — pay the minimums and invest your extra money — and for cheap debt it’s often the mathematically correct one. The honest way to choose is to run all three with the same monthly budget and compare where you end up. That’s exactly what the debt payoff calculator does.
The three strategies, honestly compared
Say you have a monthly budget for debts: every minimum payment plus some extra. The three ways to deploy it:
- Avalanche — extra goes to the highest-rate debt. When a debt dies, its minimum rolls into the attack. Minimizes total interest, guaranteed.
- Snowball — extra goes to the smallest balance. Same rollover mechanic. Costs more interest, but each closed account is a visible win, and completion rates matter more than optimality for many people.
- Invest the extra — every debt gets its minimum only; the extra (and each minimum, as its debt naturally dies) goes into investments.
The fair scoreboard is your net position when the slowest path reaches debt-free, holding the total budget identical throughout. By that date, all three paths have zero debt — so whichever has the biggest investment balance won. Interest saved by aggressive payoff isn’t a separate prize; it shows up automatically as more months of investing your full budget.
The rate thresholds that actually decide it
- Above ~10% (credit cards, payday anything): payoff, always, avalanche-first. A guaranteed 20% return doesn’t exist anywhere else in finance.
- 5-8% (HELOCs, car loans, some student loans): the genuine grey zone. A guaranteed 6% vs an expected 7% is close; tax shelter breaks the tie (see the HELOC-vs-RRSP FAQ below).
- Below ~4% (older mortgages, subsidized student loans): minimums only, invest the rest. Decades of compounding at equity returns beats cheap debt on expectation, and the TFSA vs RRSP guide covers where to put it.
Two overrides regardless of rate: take any employer match first (an instant 50-100% return), and keep a small emergency buffer before aggressive payoff — a paid-down card that you re-max in an emergency at 22% undoes the strategy.
Canadian specifics
Consumer debt interest is not tax-deductible in Canada, so payoff returns are genuinely tax-free. On the other side, the RRSP deduction is the biggest thumb on the scale: at a 35% marginal rate, contributing beats paying off mid-rate debt for most people with room — especially using the contribute-then-apply-the-refund-to-debt hybrid. Interest on money borrowed to invest (including a portfolio line of credit) is deductible, which changes its effective rate; the calculator takes the rate you give it, so use the after-tax rate for deductible debt.
What this does to your retirement plan
Debt elimination compounds twice. The interest you stop paying frees monthly cashflow that can be invested for the rest of your working life. And entering retirement with no fixed debt payments lowers the income you need to generate, which means smaller registered withdrawals, less tax, and — in Canada — less OAS clawback exposure. cinder.fi’s capital allocation engine models both effects: it ranks paying off each specific debt against investing the same dollars and shows the impact on your projection and Cinder Score.
How cinder.fi models it
The in-app payoff planner seeds from your real accounts — loan balances, rates, and payments come straight from the loan ledger; you type in credit-card rates and minimums, set your extra amount, and see all three strategies compared at the same budget and the same finish line. It flags minimums that don’t cover their own interest (a balance that grows forever) and tells you which strategy leaves you richest, not just which one feels fastest.
Build your payoff plan with real accounts →