Redirect latte-factor savings to high-cost debt first

The highest guaranteed return on any small saving is eliminating debt at 18–25% interest.

Why it works

Paying off a credit card charging 20% interest is mathematically equivalent to a 20% guaranteed investment return — an impossible rate in any standard market. The reason this isn’t obvious is that debt is denominated in loss (money owed) while investment is denominated in gain, and losses and gains are processed differently by the brain. Reframing repayment as investment unlocks the same motivation.

How to do it

1. List every debt with its interest rate.
2. Direct any freed-up discretionary spending to the highest-rate debt first, even in small amounts.
3. Track the principal balance monthly — the decrease is your "investment return."
4. Once the highest-rate debt is cleared, redirect that same amount to the next, or to savings.

Evidence

The mathematical superiority of eliminating high-interest debt over investing in standard market returns is uncontested arithmetic. Behavioral barriers (loss framing, account separation) are well documented in mental accounting research. (mechanistic)

The math is clear; the behavioral challenge is that people often maintain savings and high-interest debt simultaneously due to mental account separation — a well-documented irrational pattern.

Sources

• Thaler (1999), mental accounting matters, Journal of Behavioral Decision Making

Common mistake

Maintaining a savings account earning 4% while carrying a credit card balance at 22%, because they feel like different accounts — the net position is a guaranteed 18-point annual loss.