Lesson 2 of 10 · 8 min read
Debt: which one goes first
Paying off an eighteen percent debt is a guaranteed eighteen percent return.
Paying off is investing, with certainty
This is the sum most people never do. If you have a debt costing you twelve percent interest, every euro you repay earns you twelve percent — guaranteed, tax-free, with no risk at all. No investment offers that. Stock markets historically returned around seven percent after inflation, and even then with minus-twenty years scattered through. So as long as you carry expensive debt, investing is literally a worse deal than repaying, and that isn't an opinion but subtraction.
The line sits at your expected return
Not every debt is an emergency. The rule of thumb: if the interest rate is higher than what you can reasonably expect from investing, repay first. If it's clearly lower, it can stay while you invest. Credit cards, overdrafts, revolving credit and most 'buy now, pay later' almost always fall in the first group. A low-rate student loan and a mortgage usually fall in the second. Exactly where the line sits depends on you, but anything above roughly seven percent is too expensive for almost anyone to leave standing.
In practice
€3,000 on a credit card at 14% costs you €420 a year. That same €3,000 in a broad ETF returns about €210 on average, and sometimes minus €600. Repaying wins, every time.
Two orders, both fine
With several debts there are two methods. The arithmetically best one is most expensive first: sort by interest rate, clear the highest, move to the next. You pay the least in total. The psychologically best one is smallest first: sort by amount, clear the smallest, and use the fact that one is gone as fuel for the next. Research on people who actually get out of debt shows the second is sustained more often. The method you finish beats the method that wins on paper.
What not to do
Refinancing expensive debt into something cheaper is sensible, as long as you don't fill the old one back up. That last part is where most people stumble: the credit card is cleared, the limit is still there, and six months later the balance is back. Lower the limit or cancel the card the moment it hits zero. And never borrow to invest. That isn't acceleration, it's leverage, and leverage doesn't improve your odds — it only widens the outcome.
Stocky says
Paid off a credit card? Lower the limit immediately. Otherwise you haven't solved the debt, you've postponed it.
Remember this
- Repaying earns you the interest you no longer pay — guaranteed and risk-free.
- If the rate beats your expected return, repay first.
- Most expensive first is mathematically best; smallest first gets finished more often.
- Lower the limit as soon as a card hits zero, or it fills up again.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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