Debt Strategy/kæʃ floʊ ˈɪn.dɛks/

Cash Flow Index (CFI)

A mathematical formula used to rank debt accounts by efficiency to determine optimal debt payoff order.

Plain-English Explanation

The Cash Flow Index (CFI) helps individuals decide which debt balance to pay off first to free up monthly cash flow fastest. Rather than blindly choosing highest interest rate (Avalanche) or lowest balance (Snowball), CFI measures how much monthly cash flow you free up per dollar of debt balance paid.

Mathematical Formula

CFI = Total Loan Balance / Minimum Monthly Payment

A low CFI (< 50) represents an inefficient debt (high monthly cost for low balance). A high CFI (> 75) represents an efficient debt.

Real-World Worked Example

Debt A: $5,000 balance with $250 monthly payment -> CFI = 5,000 / 250 = 20 (Inefficient - Pay off first!). Debt B: $20,000 balance with $200 monthly payment -> CFI = 20,000 / 200 = 100 (Efficient - Pay off later).

Why Cash Flow Index (CFI) Matters for Your Finances

Paying off low-CFI debts quickly frees up significant monthly cash flow, providing financial relief and flexibility to pay down remaining liabilities.

Common Misconception

CFI is not an indicator of credit score or loan quality; it is strictly a debt prioritization metric.

Interactive Tool

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Related Glossary Terms:

Cash Flow →Debt-to-Income Ratio →