Debt Strategy
Avalanche vs snowball, the invest-or-pay-off breakeven, and credit card math at 24% APR
You have $5,000 in credit card debt at 24% APR and $3,000 in a student loan at 6% APR. You also have $500 per month to allocate beyond minimum payments. A financial advisor tells you to pay the credit card first because it has the highest rate.
A behavioral economist tells you to pay the student loan first because it's smaller — you'll feel the win sooner and stay motivated. A stock market enthusiast tells you to invest the $500 because the S&P 500 returns 10% per year. Who is right?
The answer depends on math you can do in sixty seconds — and on an honest assessment of whether you'll actually follow through. Debt avalanche: Pay minimums on everything, throw all extra cash at the highest-rate debt first. This is mathematically optimal — it minimizes total interest paid, always.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 6 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1The two debt payoff frameworks
- 2Credit card math: the 24% APR reality check
- 3The guaranteed return of debt payoff vs uncertain market returns
- 4The invest-or-pay-off breakeven
- 5Worked example: avalanche vs snowball on a real debt stack
- 6Debt payoff visualizer