Interest capitalization

**GoodThyming** · 03-30-2011, 06:58 PM

I have a $15,000 loan that has about $1,300 in accrued interest. The interest is going to capitalize next month. I have the ability to pay $1,000 before this happens. However, this loan is 4th in order of my debts to be paid following the snowball plan.

I find the idea of paying interest on interest vexing for such a sizeable amount and I am very tempted to pay that down.

Does DR have an opinion on what to do with regard to capitalization of interest?

Should I pay on that interest before capitalization, or ignore it like I would the interest rate?

**Greebo** · 03-31-2011, 06:12 AM

I don't recall him ever making a distinction about interest capitalization. I don't think he cares.

I think he would tell you to focus on the smallest debt, because what he usually tells people when they start talking mathematically is that if we were doing math, we wouldn't be in debt in the first place.

The TMMO is first and foremost about changing BEHAVIORS - and one of those behaviors we're tuning in is staying focused. Attacking ONE thing at a time, conquering it, then moving on, rather than trying to conquer everything at once and conquering none cause we get worn out.

Now if you can, say, move that debt to a lower rate WHILE attacking the smallest debt, that's fine as long as you never choose to add NEW debt again. But taking from your snowball to address avoiding paying interest on another $1,000 you already owe... well what's that really work out to anyway? $100 a year? $200 tops? Probably far less?

**GoodThyming** · 04-01-2011, 06:51 AM

Thanks for your input. I think you are right. Paying the interest will slow the snowball and it would feel good to get it going. The $1,000 would take a huge chunk out of the first debt on the list.

**Cletc** · 04-01-2011, 02:46 PM

Originally Posted by Greebo

because what he usually tells people when they start talking mathematically is that if we were doing math, we wouldn't be in debt in the first place.

This doesn't follow. Does it?
Is this faulty logic?
Maybe someone wasn't "doing the math" then, but now they are "doing the math."
So now that they are "doing the math" the math could very well be valid. :-)

**Greebo** · 04-01-2011, 02:51 PM

Originally Posted by Cletc

This doesn't follow. Does it?
Is this faulty logic?
Maybe someone wasn't "doing the math" then, but now they are "doing the math."
So now that they are "doing the math" the math could very well be valid. :-)

Reading the rest of my post first would have helped your understanding...

The point of the quote is that it's behavior modification and psychology that matter when one is getting out of debt, far more than math.

If you attack interest first without regard to balance you might be tackling the largest debt first, and with the smallest snowball possible, thus making the battle for that debt very long without any immediate reward.

Go on a diet. Do everything they tell you for a month. If you lose no weight on that diet, you'll quit.

Go on the same diet, do everything they tell you for a month, and lose 20 pounds. YOU WILL BE PSYCHED - and if it slows down afterwords, you'll still have had results that keep you excited.