David earns $6,000 net per month. His monthly expenses total $4,500. He has a $20,000 car loan at 6% interest (minimum payment $400) and a $10,000 credit card debt at 20% interest (minimum payment $300). He has an extra $500 available each month for debt repayment. Which debt prioritization strategy would minimize his total interest paid?

Question: David earns $6,000 net per month. His monthly expenses total $4,500. He has a $20,000 car loan at 6% interest (minimum payment $400) and a $10,000 credit card debt at 20% interest (minimum payment $300). He has an extra $500 available each month for debt repayment. Which debt prioritization strategy would minimize his total interest paid?

Answer options:

• Snowball method: Pay off the credit card first, then the car loan.
• Avalanche method: Pay off the car loan first, then the credit card. ✅ Avalanche method: Pay off the credit card first, then the car loan.
• Snowball method: Pay off the car loan first, then the credit card.

Correct answer: Avalanche method: Pay off the credit card first, then the car loan.

Explanation: The avalanche method, which prioritizes debt with the highest interest rate, minimizes total interest paid. In this case, the credit card at 20% interest should be paid off first.