Which debt should I pay off First?

Similar Questions:

“Which Debt Do I Pay off First?”

“Which Mortgages do I pay off first?”

“Is there an order of which debt to pay off?”

If you have multiple debts such as auto loans, student loans, other mortgages and credit cards – we do suggest you pay these off in a certain order. The method we suggest is called Cash Flow Index Calculation or in short, CFI. The idea behind the Cash Flow Index concept is that we want to pay off debt that takes the most amount of cash flow away from us but at the same time, it can be paid off rather quickly. Think of it as grabbing the “low-hanging fruit”.

By recovering cash flow earlier in the journey, you have more available cash flow to pay off other debt faster and faster. Remember, time is a HUGE factor when it comes to saving money on interest. The longer we keep a debt around, it’s going to generate more interest we have to pay.

So here’s the steps to calculating the Cash Flow Index.

1. Create a list of all of your debt on a spreadsheet or a piece of paper.
2. Identify the balance and the minimum monthly payment of each of the debt.
3. Take the balance of each of the debt and divide it by the payment. This will give you the CFI score.
4. Whichever debt has the lowest score, you pay this off first.
5. Once paid off, move on to the next debt with the lowest score and pay that off next.

By doing so, you’ll see a faster pay-off for the next subsequent debt – just like a snowball rolling down the hill!