Debt Management
4 min read
The single most useful question for any debt is: 'what's the interest rate, and could I reliably beat it by investing instead?' A home loan at 8-9% is often reasonable to pay down slowly while investing surplus cash, because long-term equity returns can realistically exceed that rate. A credit card at 30-40% almost never makes sense to carry while investing elsewhere — no investment reliably beats that.
When you have multiple debts, two common strategies are the avalanche method (pay off the highest interest rate first, mathematically optimal) and the snowball method (pay off the smallest balance first, for psychological momentum). The avalanche method saves more money; the snowball method is easier for many people to actually stick with. The best method is the one you'll actually follow through on.
A detail people miss: minimum payments on high-interest debt are structured so a large share goes to interest, not principal, especially early on. This is why minimum-payment-only credit card debt can take years to clear even on a moderate balance — the effective payoff timeline is often far longer than it looks.
Before taking on new debt, it's worth asking whether it's debt for an appreciating or productive asset (a home, an education with real earning potential) versus debt for a depreciating one (most consumer purchases). The first can be a reasonable tool; the second is usually worth avoiding or minimizing.