DEBT
Should I pay off my credit card debt or start investing first?
If you are carrying a credit card balance at 42% a year, no investment is going to outrun it. The arithmetic is not close.
THE SHORT ANSWER
Clear high-interest debt first, specifically anything above roughly 12% a year. A credit card at 36-42% is costing you more than any realistic investment will earn. Keep a small emergency buffer while you do it, and keep any employer-matched retirement contribution running, because that is free money.
The comparison nobody does honestly
Paying off a loan at 42% is mathematically identical to earning a guaranteed, tax-free 42% return. No mutual fund offers that. No stock reliably offers that. The decision is only difficult because repaying debt feels like losing money while investing feels like building something.
Two ways to do it, with real numbers
Suppose Nishi has three debts and can put ₹25,000 a month toward clearing them.
- Debt A: a credit card balance of ₹80,000 at 42% a year, roughly 3.5% a month.
- Debt B: a personal loan of ₹2,50,000 at a considerably lower rate.
- Debt C: smaller, and cheaper still.
The avalanche method puts every spare rupee at the highest interest rate first, so Debt A goes first regardless of size. This costs the least in total interest and is the correct answer on a spreadsheet.
The snowball method clears the smallest balance first regardless of rate. It costs more in interest and works better for more people, because closing an account completely produces a feeling of progress that keeps the plan alive.
The best method is the one you will still be running in month eight. If you have tried avalanche before and quit, use snowball and accept the extra interest as the price of actually finishing.
The three exceptions
Keep about one month of expenses in cash while you repay, otherwise the next unexpected bill goes straight back onto the card and undoes the work.
Keep any employer matching contribution running. If your employer matches provident fund contributions, stopping yours forfeits money you are entitled to.
Do not stop insurance premiums to accelerate repayment. A lapsed health cover during a repayment year is how people end up with more debt than they started with.
The order, in one line
One month of buffer, then everything above 12% cleared, then the investing starts properly. Home loans and education loans usually sit low enough that repaying them early is a preference rather than an obligation.
ONE MOVE THIS WEEK
Write down every debt with its interest rate next to it. Not the EMI, the rate. Most people have never seen their debts in that order.
