Paying off debt is a guaranteed return
Clearing a debt charging 7% isn't just 'avoiding 7%'. It's the exact equivalent of an investment that pays 7% a year, guaranteed, with no risk and no tax. To beat it by investing, you don't just need an expected return above 7%. You need it reliably enough to justify the risk of falling short. That's why the comparison isn't 'expected return vs interest rate'. It's 'expected return, minus a risk discount, vs a certain interest rate'.
Always kill high-interest debt first
Credit cards and personal loans at 15 to 24% beat essentially every realistic long-run investment return. No diversified portfolio reliably earns 20% a year, so carrying a 20% balance while investing is a guaranteed loss. The only exception worth taking before extra debt payments is a workplace pension match. Free matched money is an instant 50 to 100% return that even credit-card interest can't beat. After that, attack the highest-rate debt with everything spare.
Why low fixed-rate debt is different
A fixed-rate mortgage at 3 to 5% is the one case where investing usually wins. Expected stock-market returns sit comfortably above that, and crucially, inflation erodes a fixed debt balance in real terms every year. You repay tomorrow's cheaper money on yesterday's loan. Add any tax relief on mortgage interest where it applies, and the effective cost drops further. The same inflation effect that makes a fixed mortgage payment feel smaller over time also makes paying it off early less valuable.
Don't skip the emergency fund
Before throwing everything at debt or markets, hold a small cash buffer (one month of expenses at minimum, ideally three to six). Without it, the next unexpected bill goes straight back onto a credit card, undoing your progress at the worst possible interest rate. Cash flow and peace of mind have real value that a pure rate comparison misses.