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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Debt Management and Loans

Which of the following is generally the most appropriate step for an adviser to recommend first to a client who is carrying outstanding credit card balances at a high rate alongside a low-rate home loan, and has surplus cash?

The client should clear the credit card balance first. Credit card debt carries the highest interest rate, so repaying it gives the best guaranteed saving compared with prepaying a cheaper home loan or investing while expensive interest keeps accruing.

  1. APrepay the home loan fully before touching the card balance
  2. BClear the credit card balance, as it carries the highest interest costCorrect
  3. CInvest the surplus in equity while continuing to pay minimum card dues
  4. DTake a new loan to fund a holiday and spread the repayment

Explanation

Debt should generally be prioritised by cost, so the highest-rate debt is repaid first. Credit card dues cost far more than a home loan. Paying only minimum dues keeps expensive interest accruing.

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