bdubs wrote:Only bc older accounts have the largest principal (bc interest has been capitalized into it over time). So, assuming you have 150k of 3 loan disbursements all at same interest rate you should pay off the largest (oldest) first bc interest rate * largest number results in largest interest accrual amount.

You don't seem to understand how interest works. Just look at the rate, the principal amount is irrelevant.[/quote]

Yup

For example:

Loan 1: $65k at 5% (annual interest is $3.25k)

Loan 2: $55k at 5% (annual interest is $2.75k)

Loan 3: $45k at 5% (annual interest is $2.25k)

Ability to pay $50k

No matter how the $50k gets distributed the annual interest remains the same:

Loan 1: $15k - interest is $0.75k

Loan 2: $55k - interest is $2.75k

Loan 3: $45k - interest is $2.25k

Total interest = $5.75k

Loan 1: $65k - interest is $3.25k

Loan 2: $50k - interest is $2.50k

Total interest = $5.75k

However, I also think that if you have different loans

all at the same rate, and it's possible to pay one off in its entirety, this is highly advisable.

For example (different numbers)

Monthly payment on loan 1 = $150

Monthly payment on loan 2 = $100

Monthly payment on loan 3 = $50

Total time remaining on all loans is 25 months.

If payment is applied equally, total time remaining becomes 20 months, and will cost a total of $300 per month

If loan 3 is paid off in its entirety, you've got two options:

Monthly payment on loan 1 = $150 - paid off in 25 months

Monthly payment on loan 2 = $100 - paid off in 25 months

(total monthly payment of $250)

OR

Monthly payment on loan 1 = $180 - paid off in 20 months

Monthly payment on loan 2 = $120 - paid off in 20 months

(total monthly payment of $300)

TCR would be to select option 2 - keep paying the same amount every month and finish early. However, doing it this way gives the added flexibility that if you ever need some extra cash, you can reduce payments for one or both of the loans down to the original amounts, and pocket the difference - to be used for emergencies only (make sure you have enough self-control)