Cost of Debt Equation: Formula, Examples, and How It's Used in WACC
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Key terms
- Debt-to-Income Ratio (DTI)The percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to assess your ability to manage monthly payments and repay borrowed money.
- Debt AvalancheA debt repayment strategy where you pay minimum payments on all debts, then put extra money toward the debt with the highest interest rate. Saves the most money on interest.
- Debt SnowballA debt repayment strategy where you pay off debts from smallest to largest balance, regardless of interest rate. Provides psychological wins that motivate continued progress.
- Dollar-Cost AveragingAn investment strategy where you invest a fixed amount regularly, regardless of market conditions. Reduces the impact of market volatility by buying more shares when prices are low.
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