Loan Interest Payment Puzzle / Question

[bennyboy]

Good point.  I have some government-underwritten low-interest loans (like 1%).  Those will be paid off as soon as I see pigs flying in front of the bank, because if I can't make at least 10% a year on my money, I don't deserve to have ANY.

So you think you can make five times what the economy does, continuously? I hope you never get into bed with a proper wheeler dealer.

Yes, but not by investing in Mutual funds or anything, but rather by using the money to expand my business.  I'm up against this decision all the time-- given enough money to pay off a debt, do I do it?  Or do I use that money in hand to hire new staff, rent new property, and so on?

The issue is this: your personal expenses don't scale with business growth, but your profits do, so you want to scale as much as you can handle without overtaxing yourself and losing reputation by providing bad service or losing your control of your brand or whatever. When you're just turning the corner, a 10% growth in custom can mean doubling or tripling your net profits.

The debt game is a race condition, because added income requires more investment, but it ALSO means you have the capability of paying off debts even faster than before: you are hoping that your increased income will amount to more than the increased cost of the debt in monthly installments-- and also that the bubble doesn't burst, leaving you with 15% loans that used to be 4%, and fucking your profit margin forever.

This is different than the OP, where someone has presumably car or mortgage payments to make, and an income that doesn't scale with the debt. I've been in that condition too, and it means buying big bags of rice and oatmeal, driving nothing but used cars for a few years, and taking nothing more than day-trips until all those loans are paid off.

. . . starting with the highest-interest loan, no matter what.