Should I pay off debt or invest?
The interest-rate breakpoint that decides it.

Mortgage debt (~6–7% current)

A mortgage buys an asset that has historically appreciated (though not in every market or every decade). Interest is tax-deductible for itemizers^[1]. Fixed-rate 30-year mortgages transfer inflation risk to the lender: you repay with cheaper future dollars as the currency debases.

Strategy: if your rate is below about 7%, don't rush to pay it down. Every dollar of extra principal payment is a guaranteed 6% return. But investing the same dollar in VTI has returned roughly 10% per year historically, and Bitcoin has done better. The opportunity costopportunity costWhat you silently give up when you pick one option over another. Spending $100 today on dinner means giving up whatever that $100 could have grown into if you had invested it instead.Full definition of aggressive prepayment is often significant.

When to prepay anyway: if the payment is giving you anxiety, if you're near retirement and want to eliminate the expense, or if you prefer the certainty. Financial optimization isn't the only legitimate goal.

Student loan debt

Federal and private student loans are completely different risk profiles.

Strategy: federal loans at low rates (<5%), pay minimums, invest the rest. Private loans at high rates (>7%), attack aggressively. See Student Loans vs Bitcoin: The Real Math.

Car loan debt (~7–9% current)

A car loan buys a depreciating asset. The car loses roughly 20% in year one, ~50% within five years^[2]. Interest is not tax-deductible, except up to $10,000/yr (2025-2028) on a new, US-assembled personal vehicle, phasing out above $100,000 MAGI ($200,000 joint). There is no inflation protection on the underlying asset.

Strategy: minimize total car cost relative to income (see the 20/4/10 rule on The Car Decision). Keep the loan term short (48 months or less). Avoid 72–84-month loans: by the time you pay it off, the car is worth less than your remaining balance for years.

Credit card debt (~22% average APR, Federal Reserve May 2026)

The most destructive common debt. No underlying asset. Compounding works against you at rates most lenders would call predatory if any other industry charged them^[3].

Strategy: this is a financial emergency. Stop all non-matched investing until eliminated. Use the avalanche method (highest APR first, minimum on the rest) to save the most on interest; use the snowball method (smallest balance first) if you need psychological wins to stay motivated. Both work; the mathematically optimal one is avalanche.

Medical debt

Uniquely American problem. Often negotiable, hospitals have charity care programs most patients don't know exist. Credit-bureau policies have reduced the impact of medical debt on credit scores, though a court vacated the CFPB's 2025 medical-debt rule^[4].

Strategy: before paying anything, ask for an itemized bill (errors are common). Ask about financial assistance or charity care, especially at nonprofit hospitals. Negotiate the total down. Never put medical debt on a credit card, you convert low- or zero-interest debt into high-interest debt.

Personal loans (~11% average)

Unsecured, fixed rate, fixed term. Better than credit cards for consolidating high-rate debt only when the math wins. Consolidate only if the interest at the new rate over your payoff term, plus any origination or transfer fee, costs less than paying the cards off on the same schedule, and only if you stop using the cards. A longer term can cost more even at a lower APR. Debt First has the full test. Worse than doing nothing if used for discretionary spending. The psychological relief of a fixed payoff date matters; don't underestimate it. The danger is treating a personal loan as a solution rather than a symptom, if you consolidate and then rack up new credit card debt, you have made the problem worse, not solved it.

Precomputed interest and the Rule of 78s

Most consumer loans today use simple interest: each month's interest is computed on the remaining balance. Pay off early and you save every dollar of future interest that would have accrued. But a non-trivial slice of installment loans, especially older subprime auto loans, some used-car contracts, and certain RV/marine/recreational loans, still use precomputed interest, where the entire interest charge for the life of the loan is calculated up front and added to the principal. Payments retire that fixed total. Pay off early and the lender keeps a disproportionate share of the interest.

The "78" comes from the sum of the digits 1 through 12: 1+2+3+...+12 = 78. In month one of a 12-month loan, the lender allocates 12/78 of the total interest (the largest slice). Month two gets 11/78. By month twelve only 1/78. Pay off after month four and you have already paid 12+11+10+9 = 42 of 78 interest units (54%), even though you held the principal for only a third of the term.

What to check before signing any installment loan: look for the words "precomputed," "Rule of 78s," "actuarial method," or "sum of the digits" in the contract. If the rebate calculation on early payoff is anything other than "we calculate the unearned finance charge based on the remaining principal balance," ask the lender for a worked early-payoff quote at month 12, 24, and 36. If the numbers look much worse than simple-interest math, the loan is precomputed and a refinance to a simple-interest lender almost always pays for itself.

The decision framework