Coffees for everyone!

Before the promised post about finding more money to help achieve personal finance goals (which I assure you will be a hot little number), I wanted to pause and go over what’s so bad about loan interest.

My last post mentioned the vast amount of interest that accrues on already large student loans.  But when I first graduated I tended to think like “what’s the difference between $20k and $30k, I’ll be in debt forever wahhh.”  I wanted to minimize it from my consciousness and forget about it.  After all, I was paying the required payment like I was supposed to.  It would finish eventually.

But after I came to terms with the interest on the macro level (total amount accrued over the years), I studied it on the micro level.  A loan with a certain balance at a certain interest rate accrues the same amount of interest every day until the next payment date.  This is equal to the balance * the interest rate / 365 days.

So in the example from the last post, a $20,000 loan at 6.8% interest rate starts accruing daily interest the day after the grace period ends.  To be exact, ($20,000 * 0.068)/365 = $3.73.  So exactly 6 months after graduation, when you are probably the least financially equipped you will ever be, you start buying a Starbucks Venti macchiato for Sallie Mae or Mohela or the Department of Education.  Every single day, until you finish paying the loan.  In addition to the portion of the monthly check that represents payment for your actual education.

And if you have more than one loan like this, you’re buying coffees for everyone.

So while I used to try to minimize the loans from my awareness, I am now stung by this daily insult.  It is like a pack of hyenas prancing around the grasslands of your life.  There was no minimizing them now, when I could constantly hear them and see them on the periphery.  The only solution is to drive them out.


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