Personal Development for Smart People Forums - View Single Post - Advice on debt RE: student loans/house mortgage

somaziro · 05-02-2007, 03:28 PM

thanks for the different perspective Pat.

I figured out what was wrong with my initial numbers after thinking about it for awhile. say i have 1 loan, and my 1 loan payment is 300 bucks a month. I am thinking whether I should pay an extra 300 a mo to principal or invest that extra 300 a month. when i was initially calculating the different numbers, invest v pay off, i didn't take into account the fact that once i had paid off that loan I would be investing 600 a mo (the initial payment plus extra payment).

that fact totally changed my numbers and led me to discover that over 30 years, whether i have a fixed amount i invest and just pay minimums on my loans/mortgage, or if i double my payments on mortgage/loans until they are paid off then use the total of what i was spending to invest for the rest of the years leading up to 30 years... the difference between the numbers is negligible. the only difference is being debt free from loans in 7 then 10 years instead of 30 and having house paid off in 15.

IE:

what if i pay 500 a month into investments, and pay my double payments on student loans (300 a mo/ + extra 300 a mo/ and 100 a mo/ + extra 100/mo) and 300/mo extra on house mortgage over 30 years.

for 7 years I invest 500 a month = $60,475 - for first 7 years I would only be investing my 500 a month. after 7 years I pay off 6.7 loan (was paying 300 a month plus extra 300 a month for total of 600 a month) so now have extra 600/mo to invest.

for next 3 years I invest 1100 a month (500 a mo + new 600 a mo from paid off loan debt) = $126,452 - after the 3 years are up, I have paid off my other student loan (100 a mo + extra 100 a mo payment, now frees up 200 a mo) so now have 1300 a month to invest

for next 5 years I have 1300 a month = $304,320, after 5 years I pay off house and am now debt free... the extra 300 a month goes into the investment fund and now have 1600 a month to invest...

15 years at 1600 a month, 1,934,373

after 30 years with 10% return and paying off my loans at 7 years, 10 years, and 15 years end up with 1.9 million dollars.

COMPARE

invest 500 a mo + 700 a month (all my extra payments) = 1200 a month over 30 years = $2.7 million. (I would be paying off my debt and mortgage over 30 years so there is no way to invest what I would have been paying since I am still paying it). while this is about 800k more I would end up paying 200k more interest, so difference between approaches is 600k.

SUMMARY
pay everything off end up with 1.5 million after 30 years and no debt after 15 years vs. pay minimums end up with 600k more after 30 years but be in debt for 30 years.

anyway, there are factors like TAX and emergency funds that I did not factor in. Just wanted to let you know where the numbers have taken me so far.

05-02-2007, 03:28 PM	#11 (permalink)
somaziro Member Join Date: Apr 2007 Posts: 35	thanks for the different perspective Pat. I figured out what was wrong with my initial numbers after thinking about it for awhile. say i have 1 loan, and my 1 loan payment is 300 bucks a month. I am thinking whether I should pay an extra 300 a mo to principal or invest that extra 300 a month. when i was initially calculating the different numbers, invest v pay off, i didn't take into account the fact that once i had paid off that loan I would be investing 600 a mo (the initial payment plus extra payment). that fact totally changed my numbers and led me to discover that over 30 years, whether i have a fixed amount i invest and just pay minimums on my loans/mortgage, or if i double my payments on mortgage/loans until they are paid off then use the total of what i was spending to invest for the rest of the years leading up to 30 years... the difference between the numbers is negligible. the only difference is being debt free from loans in 7 then 10 years instead of 30 and having house paid off in 15. IE: what if i pay 500 a month into investments, and pay my double payments on student loans (300 a mo/ + extra 300 a mo/ and 100 a mo/ + extra 100/mo) and 300/mo extra on house mortgage over 30 years. for 7 years I invest 500 a month = $60,475 - for first 7 years I would only be investing my 500 a month. after 7 years I pay off 6.7 loan (was paying 300 a month plus extra 300 a month for total of 600 a month) so now have extra 600/mo to invest. for next 3 years I invest 1100 a month (500 a mo + new 600 a mo from paid off loan debt) = $126,452 - after the 3 years are up, I have paid off my other student loan (100 a mo + extra 100 a mo payment, now frees up 200 a mo) so now have 1300 a month to invest for next 5 years I have 1300 a month = $304,320, after 5 years I pay off house and am now debt free... the extra 300 a month goes into the investment fund and now have 1600 a month to invest... 15 years at 1600 a month, 1,934,373 after 30 years with 10% return and paying off my loans at 7 years, 10 years, and 15 years end up with 1.9 million dollars. COMPARE invest 500 a mo + 700 a month (all my extra payments) = 1200 a month over 30 years = $2.7 million. (I would be paying off my debt and mortgage over 30 years so there is no way to invest what I would have been paying since I am still paying it). while this is about 800k more I would end up paying 200k more interest, so difference between approaches is 600k. SUMMARY pay everything off end up with 1.5 million after 30 years and no debt after 15 years vs. pay minimums end up with 600k more after 30 years but be in debt for 30 years. anyway, there are factors like TAX and emergency funds that I did not factor in. Just wanted to let you know where the numbers have taken me so far.