The Cash Flow Index Method: A Complete Guide

When money is tight every month, sometimes the most important thing isn’t saving on interest — it’s freeing up breathing room in your budget. The Cash Flow Index method helps you do exactly that.

What Is the Cash Flow Index Method?

The Cash Flow Index (CFI) is a simple ratio that tells you how efficiently each debt uses your monthly cash flow. You calculate it by dividing your remaining balance by the minimum monthly payment:

CFI = Balance ÷ Minimum Payment

A low CFI means the debt is eating up a big chunk of your monthly budget relative to what you still owe. A high CFI means the payment is small relative to the balance.

The strategy: pay off debts with the lowest CFI first, because eliminating them frees up the most cash flow per dollar spent.

How It Works: Step by Step

1. List all your debts with their current balance and minimum monthly payment.
2. Calculate the CFI for each debt: divide the balance by the minimum payment.
3. Sort your debts from lowest CFI to highest CFI.
4. Make minimum payments on everything.
5. Send all extra money to the debt with the lowest CFI.
6. When it’s gone, roll that payment into the next lowest-CFI debt.
7. Recalculate your CFIs periodically as balances change.

Pros and Cons

Pros:

• Maximizes monthly cash flow relief quickly
• Great for people who feel squeezed by too many minimum payments
• Simple formula that’s easy to calculate
• Freed-up cash flow creates a buffer for emergencies
• Can reduce the chance of missing payments due to cash crunches

Cons:

• Doesn’t minimize total interest paid (avalanche does that)
• Ignores interest rates entirely, which can cost more over time
• CFI values change as you pay down balances, so you may need to re-sort
• Less well-known, so there are fewer tools built specifically for this method

Who Is This Best For?

The Cash Flow Index method is a strong choice if:

• You feel stretched thin by too many monthly payments
• You want to free up cash flow to build an emergency fund or cover irregular expenses
• You have debts with disproportionately large minimum payments relative to their balance
• You’re at risk of missing payments because your budget has zero flexibility
• You value financial breathing room over long-term interest savings

Example

Let’s look at four debts and their CFI scores:

Debt	Balance	Min Payment	CFI (Balance ÷ Payment)
Personal loan	$2,400	$200	12
Credit card A	$3,800	$95	40
Credit card B	$1,200	$35	34
Car loan	$11,000	$280	39

The personal loan has the lowest CFI at 12. That means it’s tying up a huge payment ($200/month) relative to what’s left on it. By targeting it first, you’ll free up $200/month in just 12 months — far more monthly relief than you’d get from paying off Credit Card B first (which would only free up $35/month).

With $150 extra per month applied to the personal loan, you’re paying $350/month total. The personal loan is gone in about 7 months. Now you have $350/month freed up to redirect.

Compare that to the snowball approach, which would target Credit Card B ($1,200) first. You’d free up only $35/month when it’s gone. The CFI method gives you nearly six times more cash flow relief from your first payoff.

FAQ

How is this different from the debt snowball?

The snowball method targets the smallest balance first. The Cash Flow Index method targets the debt with the worst balance-to-payment ratio. Sometimes those are the same debt — but often they aren’t. A debt with a $2,400 balance and a $200 payment is a much bigger cash flow drain than a $1,200 debt with a $35 payment, even though the second one has a smaller balance.

Should I use CFI or avalanche?

It depends on what you need most. If your top priority is saving money on interest, the avalanche method is mathematically better. If your top priority is freeing up monthly cash flow so you can breathe easier, the CFI method is the better fit. Some people start with CFI to get some breathing room, then switch to avalanche once their budget isn’t so tight.

What’s considered a “bad” Cash Flow Index?

There’s no universal cutoff, but generally a CFI below 50 means the debt is relatively expensive in terms of monthly cash flow. A CFI under 25 means the debt is a serious cash flow drain. Debts with very high CFIs (100+) are relatively efficient — they don’t eat much of your monthly budget.

Do I need to recalculate as I go?

It’s a good idea to recalculate your CFIs every few months. As balances drop, the ratios change, and a debt that was low-priority might move up the list. That said, most people find that the initial ranking holds fairly well through the first few payoffs.

Can I combine CFI with other methods?

Definitely. Some people use the CFI approach for their first one or two payoffs to free up cash flow, then switch to snowball or avalanche for the remaining debts. There’s no rule that says you have to stick with one method forever.