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One wrinkle here is that some debts have variable rates. For instance, if you have a balance with a 3% variable rate and one with a 5% fixed rate, but you are in a rising interest rate environment, the 5% fixed rate loan is effectively a hedge on the 3% loan. It drags up your effective loan rate while interest rates are lower than 5% but it lowers your effective rate if rates rise above 5%. You can determine whether this is a valuable hedge by estimating the likelihood of rates exceeding 5% long enough to make exceed the cost of the hedge.



Wouldn't this depend on how frequently it's capitalized? If it's continuous or even monthly it's better to just look at the APR.




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