Repaying toxic debt should always be your top priority for a simple reason: it costs more than what you could gain investing. Toxic debt is anything that costs more than a 6% interest rate.

See this table:

Average annual return
Credit card debt -21.3%
Overdraft -33%
UK Real Estate +4.4%
US Stocks +9.8%

In other words, toxic debt decreases your net worth faster than investing increases it.

Debt repayment methods

The Avalanche method

Pay off the highest interest rate debt first to liberate your monthly Free Cash Flow and be able to repay more.

Steps:

  1. List your debts: This time, rank your debts from the highest interest rate to the lowest.
  2. Target the highest-interest debt: Make the minimum payments on all your debts, but put any extra money towards the debt with the highest interest rate.
  3. Move to the next debt: Once you’ve paid off the debt with the highest interest rate, move on to the debt with the next highest interest rate.

The debt Consolidation method