Debt Hierarchy Management

Debt hierarchy ranks debts by cost and strategic value for clear payoff priority: (1) Payday/predatory loans (300%+ APR)—eliminate immediately; (2) Credit cards (15-25%)—guaranteed high return from payoff; (3) Personal loans (8-15%); (4) Student loans (4-7%, often tax-deductible); (5) Auto loans (3-6%, depreciating asset); (6) Mortgage (3-7%, leveraged appreciation, tax-deductible). 'All debt is bad' oversimplifies—low-interest debt on appreciating assets can build wealth while high-interest debt on consumer goods destroys it. The hierarchy creates clear rules: never invest while holding high-hierarchy debt.

When to use it

When carrying multiple debts and prioritizing payoff. When deciding between extra debt payments and investing. When evaluating whether to take on new debt. When someone says 'all debt is bad' or 'leverage is always good.'

How it can help

For anyone carrying multiple debts: list all with interest rates and pay from the top down. The model resolves confusion about debt vs. investing: if highest debt exceeds expected investment return (~7-10%), pay debt first (guaranteed return beats expected). If below, invest while maintaining minimums. This prevents both carrying high-interest debt while investing (guaranteed loss) and aggressively paying a 3% mortgage instead of investing (opportunity cost).