You are right. Say you have $500 per month to pay extra on a loan.
$500 at 4.5% = $1.88 interest monthly
$500 at 6.75% = $2.81 interest monthly
$500 at 6.55% = $2.73 interest monthly
If you don't apply the $500 to the loan, you're allowing $1.88-2.81 interest to be added to your loan every month. To pay the loans off fastest, put your money toward the highest interest rate because you'll avoid the most interest. That's 2.81 that *won't* be tacked onto your loan versus 1.88 that *won't* be tacked on. I know it looks we're squabbling over a dollar but it adds up.
If you're talking $750 a month the range is $2.81-4.23.
I suppose at the end of the day we gotta do what keeps us motivated. For some people maybe it's working on the biggest loan. But if you want to spend less money on interest, then you are right to pay extra toward the highest rate loan first.
On a side note, if you don't have an emergency fund, now's a great time..
Here's a snowball calculator if you want to play with numbers.
http://www.whatsthecost.com/snowball.aspx?country=us
$500 at 4.5% = $1.88 interest monthly
$500 at 6.75% = $2.81 interest monthly
$500 at 6.55% = $2.73 interest monthly
If you don't apply the $500 to the loan, you're allowing $1.88-2.81 interest to be added to your loan every month. To pay the loans off fastest, put your money toward the highest interest rate because you'll avoid the most interest. That's 2.81 that *won't* be tacked onto your loan versus 1.88 that *won't* be tacked on. I know it looks we're squabbling over a dollar but it adds up.
If you're talking $750 a month the range is $2.81-4.23.
I suppose at the end of the day we gotta do what keeps us motivated. For some people maybe it's working on the biggest loan. But if you want to spend less money on interest, then you are right to pay extra toward the highest rate loan first.
On a side note, if you don't have an emergency fund, now's a great time..
Here's a snowball calculator if you want to play with numbers.
http://www.whatsthecost.com/snowball.aspx?country=us
@Anonymous wrote:
You are right. Say you have $500 per month to pay extra on a loan.
$500 at 4.5% = $1.88 interest monthly
$500 at 6.75% = $2.81 interest monthly
$500 at 6.55% = $2.73 interest monthly
If you don't apply the $500 to the loan, you're allowing $1.88-2.81 interest to be added to your loan every month. To pay the loans off fastest, put your money toward the highest interest rate because you'll avoid the most interest. That's 2.81 that *won't* be tacked onto your loan versus 1.88 that *won't* be tacked on. I know it looks we're squabbling over a dollar but it adds up.
If you're talking $750 a month the range is $2.81-4.23.
I suppose at the end of the day we gotta do what keeps us motivated. For some people maybe it's working on the biggest loan. But if you want to spend less money on interest, then you are right to pay extra toward the highest rate loan first.
On a side note, if you don't have an emergency fund, now's a great time..
Here's a snowball calculator if you want to play with numbers.
http://www.whatsthecost.com/snowball.aspx?country=us
Thanks for the great link rmily! That was exactly what I was looking for but couldn't find before I posted.