MATH is Your Friend
Would you rather pay 24% interest or 3% interest?
“3% of course! What am I, an idiot?” most people would say.
But hold on a minute. I think we may need more information.
How long are we borrowing it for?
What is it being used for?
Can I make money from it? What is my return?
Is it amortized or simple interest?
How much am I borrowing?
Do I need to pay back principle or just interest?
Is the interest compounded?
Is it an open or closed loan?
As you can see there are a TON of variables that make this actually a tricky question to answer.
In my book, BYOB, I touch on this subject a little. If you really do the math, a lot of financial strategies become a lot clearer. It will help you make better decisions as to how to plan your budget, work your plan, and have your money working in the most effective way possible.
One cool example of this is the method some people use to pay down their mortgage sooner.
You use High-Interest OPEN loans to pay down the low interest CLOSED mortgage loan.
For more information watch this video. Enjoy!
(The math is a little sketchy, but the method is sound)