Mina has $20,000 in a savings account earning 3% before tax.

The credit card is the highest-cost non-deductible liability and should be the first repayment target, subject to retaining an adequate emergency reserve. Mina’s savings account produces only 3% before tax, or 1.95% after tax at a 35% marginal rate. That return is overwhelmed by a 22% credit card rate. Paying the card produces a risk-free improvement equal to avoided interest; no conservative investment can justify carrying that balance. Option A is lower priority because the car loan rate is modest. Option C is important but still secondary to the credit card. Option D ignores the after-tax spread between savings income and debt cost. The planning principle is not simply “pay debt”; it is to compare after-tax investment returns with after-tax borrowing costs, prioritizing expensive consumer debt while preserving liquidity. The planner should then structure a repayment plan and address the spending pattern that created the balance. References/topics: debt prioritization, cash flow, after-tax return, asset and liability management.

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