Not All Debt Is Created Equal
Credit card debt at 22% APR can destroy wealth. A mortgage at 6–7% may actually be a productive financial tool. The strategy depends heavily on the interest rate.
The Avalanche Method focuses on the highest-interest debt first while maintaining minimum payments elsewhere. This is mathematically optimal and minimizes total interest paid.
The Snowball Method targets the smallest balance first. Psychologically powerful, it builds motivation through early wins and often leads to higher completion rates.
Any debt above 6% APR should usually be repaid before investing outside employer-matched retirement accounts.
Pay the highest interest rate first. This minimises total interest and is mathematically optimal.
Pay the smallest balance first. Momentum from quick wins keeps motivation high.
Debt Classification Framework
| Debt Type | Typical APR | Priority | Strategy | Risk Level |
|---|---|---|---|---|
| Credit Card | 18–29% | Critical | Avalanche first | Destructive |
| Personal Loan | 8–15% | High | Pay aggressively | Moderate |
| Auto Loan | 6–12% | Medium | Standard payments | Manageable |
| Student Loan | 4–7% | Low–Med | Income-based plans | Low |
| Mortgage | 6–7% | Low | Maintain schedule | Productive |