Compare Interest Rates
Compare the interest rates on outstanding debts and direct extra payments to the highest-rate debt first — because this minimises the total interest paid over the repayment period.
In this lesson
Compare Interest Rates is part of Building a Debt Repayment Strategy. This preview shows how debt-strategy connects to everyday family decisions such as earning, saving, spending choices, goals, approvals, or parent-guided money conversations inside Progress Penguin.
Think about this money choice
Kemi has two debts: one at 5% interest and one at 22%. She can only make one extra payment this month.
How it works
When extra debt payments are available, directing them at the highest-interest debt first reduces the total interest paid over time. Interest accumulates fastest on the highest-rate balances — so each extra payment toward them eliminates more future interest than the same payment toward a lower-rate debt. This approach, called the avalanche method, minimises the total cost of debt.
Apply it to a real decision
Real-life money moment: Kemi has two debts: a personal loan at 5%/year (200000 in local currency balance) and a credit card at 22%/year (50000 in local currency balance). She has 10000 in local currency extra this month. If she pays the personal loan extra: she saves 5% interest on 10000 in local currency = 500 in local currency/year. If she pays the credit card extra: she saves 22% on 10000 in local currency = 2200 in local currency/year. The credit card saves 1700 in local currency more per year per extra payment.
Activity preview
Test the trade-off
Use the lesson to complete this short practice activity.
Try one real money action
Open Tasks and submit proof for one task, or open Requests and make a deposit request. Parent approval can happen later.
Quiz preview
Comparing interest rates across debts means:
Debts at 25%, 15%, and 10% interest. The highest priority for repayment: