The Moment
You received a bonus — $1,000, $5,000, $10,000 — and you also have credit card or personal loan debt above 8% APR. The question everyone asks: should I split it between debt and investing?
No. At 8%+ interest rates, the answer is straightforward: every dollar goes to debt.
The Math
Paying $5,000 toward a 22% APR credit card balance: Guaranteed return: 22%. Certainty: 100%. Risk: zero.
Investing $5,000 in the stock market: Expected return: 10% (historical average). Certainty: ~73% chance of positive return in any given year. Risk: could lose 20-30% in a bad year.
The comparison is not close. A guaranteed 22% beats an uncertain 10%. Even at 8% debt, the guaranteed return is competitive with the uncertain market average — and carries zero risk.
The one exception: 401(k) match. If your employer matches 401(k) contributions and you are not capturing the full match, contribute enough to get the match before paying extra on debt. A 50-100% match is an instant 50-100% return — the only return that beats high-interest debt payoff.
The order: 1. Capture 401(k) match (if available) 2. Put every remaining dollar toward highest-rate debt 3. Once high-interest debt is eliminated, then invest
Run Your Numbers
Enter your bonus amount and debt details.
High-Debt Bonus Allocator
With high-rate debt, payoff dominates. Slide your APR and balance to see the allocation shift.
Educational illustration — not financial advice. Math: @/lib/finance/allocation.ts. Allocation order follows the canonical waterfall: high-interest debt → emergency reserves → captured match → tax-advantaged room → taxable invest.
What to explore next
- →Should I use the avalanche or snowball method?
- →How do I prevent debt from coming back after paying it off?
- →When should I start investing after becoming debt-free?
Frequently Asked Questions
What about the psychological benefit of investing?
There is a behavioral argument for investing small amounts while paying debt — seeing an investment grow motivates continued financial progress. But the math does not support it. The 'motivation' of a $500 investment losing 15% in a downturn while you pay 22% on remaining debt is demotivating, not motivating. Eliminate the debt first.