3. Pay Off High-Interest Debt

You've got an emergency fund saved up and your 401(k) has been funded to the match. It's finally time to start aggressively paying down debt.

Not all debt, though! Only high-interest debt. This is debt which has an interest rate higher than you could get by safely investing the money somewhere else. Since index funds historically yield about 7% or so, we're going to define high-interest debt to mean any debt with a rate over about 6%.

This category usually includes:

  • Credit card debt (often 16%–18%),
  • Especially usurious student loans (usually from private lenders),
  • Parent PLUS loans, and
  • Many personal or business loans.

It generally doesn't include:

  • Most federal student loans,
  • Car loans, or
  • Home mortgages.

Check the details on your specific debts to be sure.

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