Pay Off High-Interest Debt
Paying 20% interest on a credit card while earning 7% in the market is a losing trade. Eliminating high-interest debt is a guaranteed, risk-free return equal to the interest rate you're paying.
Which debts to target
The threshold is approximately 4–7% APR. Anything above that is considered high-interest and should be paid off before investing beyond your employer match.
- Credit cards (15–29% APR)
- Personal loans (8–25% APR)
- Payday loans (300%+ APR)
- High-rate auto loans (>7%)
- High-rate private student loans (>7%)
- Mortgage (3–7% APR)
- Federal student loans (<5%)
- Low-rate auto loans (<5%)
- Low-rate personal loans (<4%)
Two proven payoff strategies
Pay minimums on all debts, then put every extra dollar toward the highest-interest debt first. When it's gone, roll that payment to the next highest rate.
Pay minimums on all debts, then put every extra dollar toward the smallest balance first. Quick wins build momentum.
Which to pick? Avalanche if you're disciplined and motivated by math. Snowball if you've struggled with debt payoff before and need wins to stay the course. The best method is the one you'll stick to.
Accelerate your payoff
- →Call your credit card company and ask for a lower interest rate — it often works
- →Transfer balances to a 0% APR introductory card (watch the fee and deadline)
- →Refinance high-rate student loans if you have strong credit (note: lose federal protections)
- →Sell unused items, take on side work, or cut discretionary spending temporarily
- →Apply every windfall (tax refund, bonus, gift) directly to principal
Debt eliminated. Now:
Maximize tax-advantaged retirement accounts.