Paul should normally pay the mortgage last because it carries the lowest interest rate at 3.95%.

When the objective is to minimize total financing costs, additional cash should generally be directed first toward the highest-cost debt, provided minimum payments are maintained on all obligations. This is commonly described as the debt-avalanche approach.

Paul's debts rank by interest rate as follows:

Credit card — 15.00%

Consolidation loan — 8.95%

RRSP line of credit — 6.00%

Mortgage — 3.95%

Each additional dollar used to reduce the credit-card balance prevents interest accruing at 15%, which creates a substantially larger guaranteed financial benefit than using the same dollar to prepay debt costing only 3.95%.

The mortgage has a long 22-year amortization, so it will generate meaningful total interest over time. Nevertheless, when prioritizing simultaneous debts strictly according to borrowing cost, its low rate makes it the final repayment priority among the listed obligations.

An advisor should additionally assess liquidity, penalties, tax consequences where relevant, and contractual repayment requirements. Based on the facts supplied, however, the mortgage is clearly the lowest-cost liability.

FPII reference/topic: Savings Planning and Debt Management — debt prioritization; interest costs; debt repayment strategies.

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