conversation: User (Lariyana): "I have 6 different student loans with a single provider, which are at different interest rates. I calculated how much interest i'd collect in a year from that loan. The interest rate will not change. Any interest I collect will be paid off first, before paying the principle. Numbers are below:\n\n\n\nPrinciple | Interest Rate (%) | Yearly Interest\n---|---|----\n3,500 | 3.40 | 119.00\n6,500 | 3.86 | 250.90\n3,500 | 4.66 | 163.10\n2,000 | 4.66 | 93.20\n3,589 | 4.29 | 153.97\n3,911 | 4.29 | 167.78\n\nWhen I pay my provider, any excess payment will either be put to the loan with the highest interest rate, or I can customize which loans receive how much (by percentage) of the excess.  I am in a position to put excess funds towards my student loans.\n\n*My Question*: In the interest of paying the least amount of money, where should my excess payments go?\n\n*My Solution*: 100% of my excess money goes to the loan with the highest yearly interest amount (the 6,500 one) *until* it matches the second highest yearly interest amount (the 3,911 one). Then the excess gets split 50/50 between those loans. And the pattern repeats when they reach the third highest.\n\nWhat do you think? Is there a better way to do this? Is there something i'm not thinking of? I feel like i'm missing something!\n\nThanks for any help :)\n\n*note* I've considered the avalanche method, but I don't think it'd help me, since the interest isn't added onto my principle. Plus, I feel like 250/year is a higher priority than 167/year...but I am open to debate :)"
  Self: "So, the amount you calculated as "yearly interest" is not the best number to look at in terms of paying off your debt with the least amount of money. You're absolutely right that, mathematically, your $6500 loan with an interest rate of 3.86% is costing you $250.90 per year, which is greater than the amount that your $2000 loan with an interest rate of 4.66% costs, $93.20. However, the higher interest rate on the $2000 loan means that you're borrowing that money at a higher cost. \n\nLet's say we changed your principals on those loans to be the same (as an example).\n\n* 4.66% of $4000 is $186.40.\n\n* 3.86% of $4000 is $154.40.\n\nWhich one makes more sense to pay off first? Hopefully it's obvious that the loan with the higher interest rate is costing you more. \n\nAlso, it's an added benefit that your loan with the highest interest rate is also the loan with the lowest principal- it means that if you shift your extra payments to paying off that loan first, you get to knock that one off your list faster! u/dandelickon made a great point about improving your credit score in this way."
  User (Lariyana): "Thanks! You helped clarify my mistake :) I really appreciate your explanation!"
  