You have a car loan at an 8% per year interest, school loans averaging 3% per year interest, credit card debt at 14% per year interest, and you are investing in a fund in which you are earning 7% per year. If you have excess cash flow of $200 per month, prioritize where you should make accelerated payments or invest the cash to optimize the financial result.

Question

Quizplus · Accepted Answer

The best financial strategy is to prioritize paying off debts with the highest interest rates first, as they cost the most over time. Here, the credit card debt has the highest interest rate at 14%, followed by the car loan at 8%, then investing in the fund at 7% (since it earns less than the cost of the credit card and car loan debts), and finally the school loans at 3%, which have the lowest interest rate.

You Have a Car Loan at an 8% Per Year