How I'd Pay Off Low Interest Debts Today

...Assuming you're into that kind of thing...

Debt is not good. In an ideal world, you have infinite capital and never need debt. In an ideal world, all your debt goes away.

We don’t live in an ideal world - and if you have debt the choice isn’t between 1) No debt or 2) debt. You already have the debt, there is no magic spell to get rid of it. Nope, your choice is 1) pay extra to debt or 2) do something else with that money.

This is called opportunity costs. Every dollar you spend is you choosing to skip all other options you could have chosen for that dollar.

So if you have debt. And if you want to pay it off. Then this next post is you because it will cover the tradeoffs of that decision.

For the purpose of this post, lets set up an example so we can have numbers around all these points. Let’s call it Concerned Carl who has:

• $50,000 in non-mortgage debts at 3.0% APR with 5 years remaining and a little under $1k monthly required payment

• $250,000 mortgage balance and 20 years remaining at 2.5% and almost $1,400 monthly required payment

• All-in Carl has $300,000 in total debt and almost $2,275 in required monthly payments

• A high-yield savings account that earns 4.5%

• UST that earns 5%

• Carl has an extra $1k a month to use and wants to pay down his debt, but he also has no savings or assets of any sort.

Now Carl has been searching around the Dave Ramsey no debtoor sphere and has run his numbers.

On his $50k of student loan debt, paying an extra $1k a year lets him pay it off in more than half the time.

And paying an extra $1k into his mortgage also results in cutting the payment period in almost half.

Score.

Carl also knows that his student loan has both a lower balance and higher interest rate - clearly the student loan debt is the one to start with under both the snowball and avalanche methods. ]