Investing 102

[Bucketlist2012]

Originally Posted by sik68

If you would oblige, how about a little more Non-Investing 102? A lot has already been said to the effect of paying down debt before investing. My wife is in school, so we're borrowing from the government under their nice ''interest accrues upon disbursement" plans. By the time she graduates, we will have a California-house-sized loan that will even make the numbers Greg is working with look small. In the meantime, we have a buffer, and are continuing to keep our accounts flat...adding money towards our savings or retirement accounts now will just hurt us later.

Perhaps the experts in here will weigh in more succinctly...


A lot of people say you should attack the loans with the highest APR first. To me, it seems like the mathematically advantageous approach is to pay down the loan with the greatest overall accrual growth.

As an example:
100*5% APR = $5/year
50*8% APR = $4/year
So you pay down the $100 loan until the annual accruals are equal (at $80) then pay them down equally, no?

Sure mathematically it makes sense...But you have that theory, and then you have Dave Ramsey who believes in the "Debt Snowball", effect of killing the lowest balance first to build up the psychological Victory...

Two different theories to get to the same result...debt free except a mortgage...

I never bought Dave ramsey's stuff, but I did use some techniques to get debt free...I do use and pay credit cards and have ahigh FICO..Ramsey doesn't believe in that, But to answer your question, the debt snowball theory is the other method...Or you attack your highest rate loan first...