Debt Payoff vs Investing: Avalanche, Snowball, and the Third Option
Most debt advice offers two strategies: avalanche and snowball. There’s a third, which is to pay the minimums and invest the extra, and for cheap debt it is often the better choice on the math. To choose, run all three with the same monthly budget and compare where you end up. The debt payoff calculator does this.
The three strategies compared
Say you have a monthly debt budget: every minimum payment plus some extra. Three ways to use it:
- Avalanche: extra goes to the highest-rate debt. When a debt is paid off, its minimum rolls into the next one. This minimizes total interest.
- Snowball: extra goes to the smallest balance, with the same rollover. It costs more interest, but each closed account is a visible win, and for many people finishing matters more than the optimal order.
- Invest the extra: every debt gets its minimum only, and the extra (plus each minimum as its debt ends) 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 the one with the biggest investment balance wins. Interest saved by aggressive payoff shows up automatically as more months of investing your full budget.
The rate thresholds that actually decide it
- Above ~10% (credit cards, payday loans): pay off, avalanche-first. A guaranteed 20% return doesn’t exist anywhere else.
- 5-8% (HELOCs, car loans, some student loans): the grey zone. A guaranteed 6% vs an expected 7% is close, and tax shelter breaks the tie (see the HELOC-vs-RRSP FAQ above).
- Below ~4% (older mortgages, subsidized student loans): minimums only, invest the rest. Decades of compounding at equity returns beats cheap debt on expectation. 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 you max out again in an emergency at 22% undoes the plan.
Canadian specifics
Consumer debt interest is not tax-deductible in Canada, so payoff returns are tax-free. The RRSP deduction weighs the other way: at a 35% marginal rate, contributing beats paying off mid-rate debt for most people with room, especially with the hybrid of contributing and applying the refund to debt. Interest on money borrowed to invest (including a portfolio line of credit) is deductible, which changes its effective rate. The calculator uses the rate you give it, so enter the after-tax rate for deductible debt.
What this does to your retirement plan
Paying off debt helps twice. The interest you stop paying frees monthly cashflow you can invest for the rest of your working life. And entering retirement with no fixed debt payments lowers the income you need, 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 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 starts from your real accounts: loan balances, rates, and payments come from the loan ledger, and you enter credit-card rates and minimums and set your extra amount. It compares all three strategies at the same budget and finish line. It flags minimums that don’t cover their own interest (a balance that grows forever) and shows which strategy leaves you with the most money, not just which is fastest.
Build your payoff plan with real accounts →