LogFAQs > #959887026

the_rowan posted...

To be honest, this is one of those things that, as a college student learning things on my own, caused me to often feel like I was missing some fundamental financial concept. Like, it's blindingly obvious that you lose anything you pay in interest, so you should do whatever means you pay the least interest when paying off your loans, yet people I would think should have so much more experience with managing finances would not follow that decision tree. Turns out people are just unbelievably stupid. You're looking at effectively taking a 15% rate of return on that money vs 3% (i.e. every year you'll have another $300 vs another $60, ignoring the compounding rate).

(I'm aware that there are more nuances when deciding whether you should put money towards paying off a loan vs doing something else with it, but generally paying off a loan with a 15% interest rate should be one of the absolute top priorities for your money after the things you need to survive.)

On a side note, my credit card company probably hates my guts since I haven't paid them a cent of interest in the entire 15 years I've had a card...

It was baffling to see because the guy isn't an idiot. If he was stupid I wouldn't think anything of it and stop trying to explain it but in most other respects than math apparently this is a fairly smart guy. We are both software engineers and I know he is capable of doing good work but I just couldn't get him to realize it was basic math.

(355,000*.03) < ( 350,000*.03 + 5,000*.15)

I would write that on the board and he would demand we add in loan terms, map it out on a spread sheet, factor in how much the person is spending on their grocery bills every month, etc.. He just saw the 350,000 and lost his mind.