A Quick Study in Interest Rates and a Public Service Annoucement

There are several major theories on the most effective way to pay off debt. They make for very good reading, but I want to quickly touch on two other topics: simple comparisons and debt shaming. Let's start with the easy stuff.

I am sometimes surprised by how much some people seem to hate numbers. Literally, I cannot begin to tell you how many people have talked about "you finance people" like it's the new clique in school who shoots you dirty looks. They are amazed at some of the things you can do with spreadsheets and how you can keep it all straight. I feel the same about cars and history.

This in itself is not a bad thing. We all have areas where we excel. However, not understanding something can quickly lead into unpleasant areas you didn't expect. Recently, I had a conversation about student loan debt wherein this person had two loans with the same interest rate. Without the fine print in front of you, you cannot be certain of all the details. However, I had to explain numerous times the concept of how much interest would be paid between them. It took three examples to get the point across that it is the same. So when you are truly comparing apples to apples, meaning all the fees, ect are the same, it will work out like below.

Let's do a quick example:

Scenario 1

Scenario 2

Scenario 3

It's a topsy-turvy world. Now remember how not understanding can lead to unpleasantness? Think politics, religion, love, and anything else that results in defamation, death, or desolation. Those are more extreme examples, but the concept of debt shaming is a rising trend that I find particularly disheartening.

The person with these student loans felt bad about paying them off in the "incorrect" order according to his father who also did not understand the above examples. It immediately brought to mind the debate on whether to pay of the smallest loan first or the one with the highest rate. That's a conversation for another day. What I feel very strongly about though is that debt is an epidemic in this county - one most of us face at one time or another. It is a hard and often emotional thing to go through. Debt shaming for not doing it the "right" way is counterproductive and hurtful. It has the added bonus of making a person afraid to speak to others about their goals and progress, making it even more likely they will miss out on good advice or slip back to old habits.

I advocate for paying off debt in the way that makes it most likely that you will achieve your goal. Don't be afraid to find a way that works for you because you are the only one who knows whether it is a regimen you can commit to or not. Control your own life and remember to tread kindly.