# Why You Should Pay High Interest Loan First

Why you Should Pay High Interest Loan First

Paying your loan is like renting equipments .

You see, interest rate is like the rent cost of money .

It’s like you are employing someone else’s money and you have to pay that money salary .

In money, the money’s salary is often stated in terms of the ratio between money borrowed and how much you have to pay for borrowing such money .

That ratio is called interest rate .

For example, if you borrow $10,000 and you have to pay $3,000 per year for not paying that $10,000 then your interest rate is $2,000/$10,000=30% .

Simple?

That’s assuming that the money you borrow is constant, namely $10,000 .

If you don’t pay your interests, then the $3,000 is added to your loan .

So next year, you owe $13,000 .

Two years from now, you’ll owe $16,900 .

Got it? in Math, few functions increase faster than exponential function, and this is one of it .

If you borrow some money at 30% interest rate from a credit card company and 9.9% interest rate from your mortgage, then you are paying more money for your credit card company for every unpaid dollar loan.

Each dollar from a credit card company costs 30 cents per year, while each dollar from your mortgage costs 9.9 cents per year .

Think of it this way .

Say each dollar that you owe is like your employees .

Just like your boss paying you your salary for borrowing your time, you pay your creditor for borrowing their money .

You should of course, try to fire the higher paid employee first .

Why hire money from the credit card company for 30 cents per year if you can hire money from your mortgage company for 9.9 cents per year .

For simplicity's sake, say each dollar from a credit card company is worth the same with each dollar from your mortgage, obviously you want to pay less salary to the credit card company .

So you should pay your credit card company first .

If you owe $30,000 from a credit card company and $30,000 from your mortgage, for the same payment, you’ll be free of debt cheaper if you pay your credit card company first .

I made a simulation and put the result in a very easy to understand table in fasterfinancialfreedom.com .

Then, I translated the whole thing into English for even more sense.

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