Not All Debt Is Equal
Which of your debts is the one hurting you?
The idea
Debt differs by interest rate, by whether it is secured, and by whether it funds something that grows.
In the real world
A card at 25% and a fixed low-rate loan behave nothing alike.
Going deeper
Cost is set by rate, not balance, so the intuitive strategy of attacking the largest number is usually the expensive one. A pound against 25% saves six times what the same pound saves against 4%.
The reason people do it anyway is that clearing a large balance feels like more progress, and progress is what sustains the effort. That is a real consideration, which is why the two approaches — highest rate first, smallest balance first — both have advocates. The point worth being clear about is that one is optimal financially and the other is optimal motivationally, and choosing deliberately beats drifting.
Where it stops applying
Secured and unsecured debt also differ in consequence, not just rate. A low-rate loan secured against your home carries a risk that a higher-rate unsecured one does not.
Why it matters
It gives you an order to pay things off in, instead of treating all debt as one weight.
Try this today
List your debts by interest rate and see which one is actually costing you.
Test yourself
Someone with a 25% credit card and a 4% loan pays extra off the loan because the balance is larger. What is wrong with using balance to prioritise?
Show the answer
Cost is set by rate, not size. Every pound against the 25% debt saves six times more than the same pound against the 4%. Paying the larger balance feels like more progress while the expensive debt keeps compounding.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.