Below is the new amounts for our debt. It went down (yay) but not by more than the minimum payment - interest (boo). If we stay with only paying the minimum payment, we'll end up paying $23,254 in interest. Even with the hopefully accelerated schedule, we'll still be paying more than what the item is worth. And that's a crazy and really, ultimately, a bad decision, because none of these debts make any money. And that's not even counting the mortgages (you end up paying for half an extra house...roughly).
There's this concept out there of good debt and bad debt. Good debt is things like mortgages, and sometimes student loans. The theory is that these debts get you something, earn something for you. With a mortgage, house prices tend to trend upwards, so paying for a $100k house with an $80k mortgage, you'll end up selling it for more than $100k and earning the difference. And that difference is typically more than the interest paid. The end equation would look like this:
Sale price of house - closing costs/commissions - interest on mortgage - mortgage balance - down payment = revenue from house
So in our example of a $100k house selling for something more than that, we'll say $120k, and assuming you lived there for the average of 6 years, it would look like this:
$120k - $10,800 - $20,495.86 - $71,310.79 - $20,000 = -$2,606.65
amortization calculator from bankrate.com
This assumes the following: 20% increase in house value over 6 years, 9% closing costs/commissions, 4.5% mortgage interest rate and 20% downpayment
As you can see, your house is not actually an investment. You'll end up losing money, even if you get a check at the closing table (that'll be your down payment getting refunded).
So your house isn't good debt. It's a place to live. That's not saying you shouldn't buy a house, just don't call it good debt.
What about student loans? Student loans are getting more and more seemingly necessary as the cost of college goes up (at an astonishing rate). The interest is typically low, and there are programs that will offer loan forgiveness if you stay in a certain professions (teacher, americorps, etc). The theory here is that getting a college education will enable you to get a good job to pay off your student loans quickly. But that's not usually the case. A shocking number of people end up getting a job outside the field they have a degree in. And are saddled with student loans for a really long time. So the return here is less simple to calculate than the mortgage example, because there's so many variables. One of the most valuable ways you can set yourself up is to graduate from college with no debt.
The moral of this story is that in reality, there is no good debt*.
Love,
Mama
*There actually is good debt, but only in reference to investment assets.
***********************************************************************
The total last time was $155,888.27. Current total is $154,740.05. We paid off $1,148.22.
Amount
|
Payoff
|
%
|
Min. Pmt
|
Notes
| |
Car Loan
|
$16,797.71
|
3 year - 12/2020
|
2.24%
|
$ 541
| |
401k
|
$33,223.03
|
20 year - 5/2032
|
3.25%
|
$ 227
|
Must pay off in full
|
T Alaska Visa
|
$18,426.89
|
10/2018
|
0.0%
|
$ 210
|
0% until 10/2018
|
HELOC
|
$74,503.45
|
10 year 2027
|
3.99%
|
$ 357
| |
Al Alaska visa
|
$12,299.49
|
5/2019
|
3.99%
|
$ 150
|
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