Description: In this review of greatlakes borrowing login, you may know the most efficient way to pay off multiple loans of varying amounts and interest rates. From the passage, we can see it is best to apply extra money towards the loan with the highest interest rate.
I had friends who had several different loans to pay off. They have a little bit of extra money each month. They want to know what the best way to pay down that loan quickly is. First of all, if you have one loan, any time you can pay extra each month. If you have $500 for each month, you will pay an extra $50.
That $50 is going to go directly to the principal. Because you’ve taken some of the principal down, that’s also going to save you a crude interest later. If you are going to put $100 a month on a loan, that’s going to save you more than a hundred dollars each month.
When you have more than one loan, let’s assume the interest rates are constant which may not be the case. If you have credit cards or you have an adjustable mortgage and they’re all the same interest rate, it’s always going to be the most efficient to put any extra money on the highest interest rate.
That’s true whether it’s a loan for a hundred dollars or for several hundred thousand dollars. It doesn’t matter which one has the most amount of money to be paid off and it doesn’t matter how long it takes to pay off. You always want to put the additional money on the highest interest rate loan.
To help with that, I made a spreadsheet where you can have up to 10 loans. If you want to get that spreadsheet, you can download it by going to this link. I’m going to show you how to do that in a second, but what you want to do is to change the cells that are yellow.
We’re also going to make the assumption that any extra money you have always goes to the highest interest loan and once a loan is paid off that same amount of money then gets applied to the next highest interest rate loan and so on until they’re all paid off.
For this example, we’re going to assume you have three loans. We’re going to assume that you have a mortgage for 200,000 in 6%. We’re going to assume that you have a school loan for $40,000 in 8% longer. Let’s say you have some credit card debt about $10,000 in a high rate like 15%.
It’s going to make the most sense to put any extra money here. In the spreadsheet, there’s a picture of it and you can change anything in yellow. You’re going to put the amount, the interest rate and your minimum payment for each month in each of your loans. You can put an extra payment here, but my recommendation is to put any extra money there.
You’ll see how that affects the time to pay off each loan. In this example, you can see here is the mortgage at 6% and $1,200 is your minimum monthly payment. Let me take this back to the beginning. Let’s assume you don’t have any extra money and you don’t have any other loans. I’m going to zero out these other two, so we’ve all learned at some point. If you have any additional money and can pay anything extra towards the principal, it turns out to make a huge difference.
When you look $200,000 6% minimum payment $1,200, that’s a 30-year mortgage. Let’s say you had an extra hundred dollars to pay extra month which is a modest amount. You would normally have to pay two hundred and thirty one thousand dollars in interest and it would take you 30 years to pay off, but putting a hundred dollars extra a month would shorten that by over five years and a whole lot of money. You can see that makes a big difference.
If you have a single loan, it’s powerful. Let’s look at what happens if you have multiple loans. I’m going to put the other values back in the cells so that you have the other loans as well to pay off. Let me put the other two loans in there, a student loan for $40,000 8% with a minimum payment of $409 and a credit card at 15% 162 dollars.
You can see that this is going to shorten this to 20 years and the reason is that you’re going to pay off the the credit card and the school long before that. Any additional money that you were paying those loans is now going to go to the mortgage and that’s going to shorten that and you will have $100 extra a month that you want to throw on.
You’re going to see that it is going to go initially to the credit card and shorten that, because that’s the highest interest rate now. If you want to use this for real, you can go ahead. Any time you make a payment, put that in here and it will create recalculation of everything below that.
I also want to show you the graph of the payment. The blue one is the overall debt that you have. This pink one starting at 200 K is the mortgage. You can see it goes down each month as you pay, but at some point, you’re going to pay off the credit card debt. Any additional money is going to the next highest interest rate which is the student loan in this case.
Once that’s paid off, that’s going to go to the mortgage. You can see that it goes down much quicker even though the credit card is a small amount of loan. It’s always going to be better to put the additional money on the highest interest rate. Once that’s paid off, put on the next highest interest rate and so on. You should be careful when you do this.
If you had a credit card, that might balloon to some obnoxiously high interest rate. If you have a mortgage, that’s an adjustable rate. You need to think carefully, but all things are equal. It’s always going to be better to put the extra money on the highest interest rate loan until it’s paid off.
This spreadsheet allows you to do that. If you have any extra money, put it here and you can follow each individual loan when you scroll through. You can look at what it’s going to be overall. This date doesn’t mean anything other than the first payment in this table. You can put today’s date or ten years ago. It doesn’t matter. I made this a few years ago and somebody was asking about it today. It occurs to me that it might be useful to somebody, so I hope that you can find this is useful. If you have any questions, let me know.
I want to take a second and show you that in this scenario with the two hundred thousand dollar mortgage, the forty thousand dollars student loan and the ten thousand dollars in credit card debt. If you don’t put any extra month, it’s 20 years.
It’s not thirty because the money that would have gone to the other loans went to the mortgage. But if you put even $20 a month, that’s going to save you four months and seven thousand dollars over the course of the loans.
If you put $50 extra a month, that’s going to save you fifteen thousand dollars and shorten it by over a year. A hundred dollars saves a twenty seven thousand dollars; $200 a month saves you forty four thousand dollars. Five hundred dollars a month extra which granted is a fair amount of money to shell out.
It saves you seventy eight thousand dollars and shortens the payment term from seven months to thirteen months. Interest is a powerful thing and hope this helps somebody out there.