Your handsome friend should pay off the LEGO credit line of $375K @2.7% first.
I have this super cool "friend" who has $110K @ 3.39% interest on a car loan and $270K @ 4.5% interest on a mortgage.
Now logically he should pay off the higher interest rate first, but since it's a mortgage, isn't the interest on it tax deductible? Which should my ridiculously good-looking friend pay off first?
You got the ashtray, gross.
AFAIK mortgage interest is still deductible on a primary residence up to a $750,000 loan.
Wait, how does mortgage interest and tax deductions work? Is there something like a mortgage statement I should be giving to my tax person? First time I hear about it being tax deductible. Or is that something that happens automaticly in the background with your pay cheque?
Isn't there a maximum on amount of interest that is deductible, though? I thought it was something silly like $10 or $15k
What in the fuck are you smoking? The answer is no. NO. No you do not do something that stupid. What are you pulling out of your ass that makes you think that is a better way to pay off debt?
Do you understand how interest works? Have you multiplied decimals in your existence? It's not a hard concept.
What dasherHampton said isn't wrong and paying off the highest interest is not always the best method.
Ah right, I keep lumping all of those into the same thing...I forget that I learned that it wasn't the same thing about a year ago.The limit on deduction for property (and other) taxes is $10,000 for 2018. . SALT (State and Local Taxes.That doesn't apply to mortgage interest.
"The final tax bill that President Trump signed into law allows filers to deduct up to $10,000 in state and local property and income taxes."[/URL]
Having more cash flow will make it much less likely that you have to borrow more in the first place.
I'm assuming that a person in this situation has no emergency fund. In the situation I listed above: that extra $100+ a month makes it much easier to finally build one up so a person doesn't have to constantly charge things and stay in debt longer.
Interest is a small part of the equation.
Along the can you afford a $40,000 expense line was an article I saw in this morning's paper about auto property liability. Suppose you have an accident and run into Madoka's McLaren and then spin into the guardrail. $100,000 to fix his car, which thankfully your insurance covers and then oops! a bill for $200,000 for the guardrail and your liability coverage was already maxed out. With cars being ever more expensive and costs of everything else going up as well, raising liability limits might be wise if yours are low. Just might want to check your current limits.
And what if Madoka is in process of transporting 100kg of limited addition LEGO sets when we run into him? I wonder if we are also liable for that...
mathematically it is - provided there are no constraints, outside factors or behavioral impacts. which, of course, there often are.
financial forums (MMM, bogleheads, reddit FI) often criticize people who pay down lower-interest debt first. and granted, a significant number of people are probably doing that who should switch to the highest-interest debt first.
but some people might need the "win" of knocking out one small loan to keep them working on paying them off. yeah, it might be irrational, but no one is rational all the time (and some people much less so). even if it meant they ended up paying a few hundred or even a few thousand extra, if it was the difference between them finally getting debt paid off and letting it continue to grow, then it was worth it.
i try to remember that only the sith deal in absolutes.
Having more cash flow will make it much less likely that you have to borrow more in the first place.
I'm assuming that a person in this situation has no emergency fund. In the situation I listed above: that extra $100+ a month makes it much easier to finally build one up so a person doesn't have to constantly charge things and stay in debt longer.
Interest is a small part of the equation.
lol you always get so fucking angry for no reason.
Along the can you afford a $40,000 expense line was an article I saw in this morning's paper about auto property liability. Suppose you have an accident and run into Madoka's McLaren and then spin into the guardrail. $100,000 to fix his car, which thankfully your insurance covers and then oops! a bill for $200,000 for the guardrail and your liability coverage was already maxed out. With cars being ever more expensive and costs of everything else going up as well, raising liability limits might be wise if yours are low. Just might want to check your current limits.
s0me0nesmind1 is gonna get a brain aneurysm one day. lol.
s0me0nesmind1 is gonna get a brain aneurysm one day. lol.
All of what you say is true, but someone else mentioned the psychological factor of just getting a bill paid off, regardless of the financial particulars. Personal psychology is a wildcard, and if paying off the lowish balance/interest credit at the expense of worse debt keeps them going, I wouldn't say it's wrong, especially if the alternative is "Fuck it. I might as well put it on the card since I'll never be out of debt".No. Wrong. Interest is THE determining factor after step zero - which is simply having money to pay. If you don't have money to pay - then interest isn't even a question, nothing is a question, because you're never going to get out of debt or poverty. The answer to everything in life in regards to issues such as this is education. Not dumbing things down a 'la "snowball method". It's not teaching people what they are doing wrong.
Hell, the entire reason they are in debt has to do with their inability to financially track things to begin with - and if you are telling them to do the snowball method you're essentially just saying they are too stupid to master simplistic math. That's a problem. And trying to teach them wrong is only spreading the problem.
Your prospective idea of things like "having extra cashflow" is just pure laughable - Understand, we aren't talking about poor lower class that can't even get approved for credit, we are talking middle class. The middle class that piles on thousands upon thousands of dollars in debt in order to keep up with the Jones. At no point in paying off the smallest debt and having an extra $35 in cashflow (typical minimum payment) will ever help. The basis for which - anyone with half a brain would say "pay $35 less to the highest interest" if you really needed it for that given month. If you're paying off everything with minimum amounts, how do you ever expect to get out of poverty? Be it snowball, or highest interest?
And honestly, It's really rather annoying that you guys are honestly suggesting "There is no best method". The fact that someone is cognitively inferior of simple behavioral changes does not divert what the best method is for paying debt. If someone asks you, "What is the best way to get to New York from Florida?" does it sound like a reasonable answer would be "Well, I think the best way is to take Interstate 10 to San Antonio, then go North to Oklahoma city, and then NE to New York - because I just don't like the Interstate 95 method"? No. Of fucking course it doesn't. You see how stupid that sounded? That's how you sound when you say "Not always the best method".
Ahhh, yes - it's so easy to tell my emotions on the interwebz No, to be honest, I just prefer to see the world more educated instead of accepting them as too mentally inferior. I know, I know, I'm living in a fantasy world. But one can dream.
When you don't have money they just make you produce it or squeeze it out of you. Ex: garnishing wages.
There's some kid that caused a forest fire somewhere in the states and he's now liable to pay 10's of millions of dollars. Just because he does not have that kind of money does not excuse him from paying it. He'll probably end up in jail if he can't pay it back on time I imagine. Or he'll just keep working a minimum wage job for the rest of his life since he'll have no incentive of working a higher paying job since he'll just be losing any money he makes.
On the other hand I have seen car theft situations where someone steals a car and causes tons of damage is somehow gets away with it without having to pay a dime and everyone is on the hook for it. I think that's BS.
You seriously have no grasp on reality, there is no such thing as debtors prison that went away a long time ago.
That story was recent and you must not of read the actual article because the judge basically said the judgment will disappear if the kid behaves himself on probation.
Also garnishing wages goes back to squeezing blood from a rock. Most of those people just work under the table or 1099 jobs where they cash checks and don't put it in a bank account or they bounce from low paying w2 job to low paying w2 job as soon as the garnishment hits the new employer. On top of it they can only take so much so that $10 they get from a few paychecks doesn't even pay for the trouble of getting the garnishment each time. Then it takes months to a year to find out the person has a new job, where at, get the garnishment. Just for them to quit as soon as the garnishment hits.
Nonsense, men are asked to pay for their children. Alimony is fairly rare in modern divorces as women have far more employment opportunities than they did when alimony was common.What about people who are on alimony or child support, they go to jail if they can't pay, and those amounts are usually set very high, often higher than what they can afford. That is only adding insult to injury when the man just lost half of his assets in first place.