Quick Answer
High-interest debt is generally anything above 10% APR. Payday loans run 300–400% APR; credit cards average approximately 20% APR; car title loans can exceed 100%. Eliminate high-interest debt before investing, working from the highest rate down (avalanche method).
What Is High-Interest Debt?
High-interest debt is generally any debt above 10% APR, the threshold most financial advisors use, and anything over 8% is worth prioritizing for payoff. For context, the risk-free 1-year Treasury sits near 5 to 6%, so credit cards at 20%+ and payday loans at 400%+ APR drain your future earnings the fastest.
There is no official government threshold, but the Consumer Financial Protection Bureau and financial advisors broadly agree on the 10% line.
For context: the 1-year Treasury bill (baseline risk-free rate) sits around 5-6%. Anything significantly above that penalizes you heavily.
The spectrum of debt:
- Mortgages (5-7% APR): Low-interest. Secured by a house. Tax-deductible. Worth carrying for decades.
- Federal student loans (5-8% APR): Low-to-moderate. Fixed rates. Flexible repayment. Okay to pay over 10 years.
- Auto loans (4-12% APR): Moderate. Secured by car. Okay if you need reliable transportation. Higher rates? Prioritize payoff.
- Credit cards (20%+ APR): High-interest. Unsecured. This is the debt trap. Pay aggressively.
- Payday loans (400%+ APR): Predatory. Designed to trap. Escape at all costs.
What Is the Priority Order for Paying Off Debt?
The priority order for paying off debt runs from highest rate to lowest: payday loans (400%+ APR) first, then credit cards (20%+), then auto and personal loans (8 to 15%), then student loans (5 to 8%), and mortgages (5 to 7%) last. Attacking the highest-rate debt first saves the most money, because each dollar erases the most future interest.
- Payday loans (400%+ APR) — Get out immediately. Borrow from family, negotiate with creditors, do anything to escape. These are designed to trap you.
- Credit cards (20%+ APR) — Pay aggressively. Balance transfer or consolidation if possible. Interest compounds monthly.
- Auto loans & personal loans (8-15% APR) — Pay above minimum. Refinance if your credit improved.
- Student loans (5-8% APR) — Pay while you can, but IDR plans exist if income drops. Tax implications changed in 2026 — plan accordingly.
- Mortgages (5-7% APR) — Lowest priority. Tax-deductible interest. Carry for 30 years if you want.
Which Predatory Debt Products Target ITIN Holders?
Four predatory products target ITIN holders: check cashing services (10 to 30% per transaction), payday loans (400%+ APR), car title loans (15 to 30% APR that can cost you the car), and wire transfer fees (3 to 10% per transfer). With limited access to traditional banking, immigrants are marketed these "quick cash" traps that cost far more long term.
Check cashing services: 10-30% fee per transaction. If you cash a $2,000 check, you lose $200-$600 immediately. Open a bank account instead — even without an SSN, you can open accounts at credit unions and online banks that accept ITIN.
Payday loans: Marketed as "quick cash" or "instant loans," these charge 400%+ APR. A $500 loan costs $575 to repay in two weeks. You'll be trapped in a cycle. Credit unions offer payday alternative loans (PALs) at 28-36% — still high, but a fraction of 400%.
Car title loans: Borrow money using your car as collateral at 15-30% APR. Miss a payment and they take the car. Avoid unless desperate — refinance a car loan instead.
Wire transfer fees: Sending money home? Western Union and similar services charge 3-10% per wire. Credit union transfers cost $0-$5. If you send $1,000 monthly, that's $30-$120/year in fees.
Should You Pay Off High-Interest Debt Before Saving?
Yes, in most cases pay off high-interest debt before saving. If the rate is 15% or higher, paying it off beats investing, because the interest you avoid is a guaranteed return no market can promise. The 2 exceptions: keep a 3-month emergency fund first, and capture any employer 401(k) match before attacking the debt.
The exceptions:
- You need an emergency fund first. Don't skip this. Keep 3 months of expenses in savings, even while paying high-interest debt. An unexpected job loss or medical bill will force you back into debt if you don't have a buffer.
- Debt below 8% is softer. A mortgage at 6% or a student loan at 5%? You might beat inflation by investing instead. But credit card debt at 20%? There's no investment beating 20% guaranteed return. Pay it off.
- Match employer 401(k) contributions first. If your job offers a match (free money), contribute enough to get it. Then attack high-interest debt. Then max retirement.
Decision framework:
- 15%+ debt: Pay first (after 3-month emergency fund).
- 8-15% debt: Aggressive payoff + small amount to retirement.
- Below 8% debt: Pay minimum + invest in index funds.
Frequently Asked Questions
What counts as high-interest debt?
10%+ APR is considered high-interest by most financial standards. Anything above 8% is worth prioritizing for payoff. Credit cards (20%+), payday loans (400%+), and car title loans (15-30%) are extreme examples. Federal student loans (5-8%) and mortgages (6-7%) are lower-interest.
Why does debt order matter?
Interest compounds. $100 paid toward 25% debt saves you $25/year in interest charges. The same $100 toward 5% debt saves only $5/year. Paying high-interest debt first saves the most money overall and gets you out of debt faster.
What predatory debt traps target ITIN holders?
Check cashing (10-30% fees), payday loans (400%+ APR), car title loans (15-30% APR), and wire transfer services (3-10% fees) are marketed heavily to immigrants. Limited access to traditional credit makes ITIN holders vulnerable to these options. Avoid them.
Should I pay off all high-interest debt before saving?
It depends on the rate. If debt is 15%+ and you have an emergency fund, prioritize payoff. If debt is 6-8%, investing might beat paying it down. But payday loans (400%+) and credit cards (20%+)? Always pay first. An emergency fund stays separate — keep 3 months expenses there regardless.