Bogleheads II for new investors in Milwaukee Wisconsin: Debt Reduction can be easier with a strategy to reduce the amount of interest and pay off debt efficiently.

1. How to Pay Down Debt
And be cagey about it
• Laura Ricci
• Milwaukee Bogleheads II
• November 13, 2017
Student Level Expertise Age: under 30

2. Tips and Tricks
Here are a variety of plans you can use.
All roads lead to prosperity, so use one that makes you feel
good about dumping debt.
The only wrong answer is to not pay your debt!

3. Jerry Dettor
• $ 20,000 4 years 4.5% -- Car Loan
• $160,000 30 years 4% -- Condo Loan
• $ 5,000 3 years 18% -- Credit Card debt
• $ 40,000 10 years 8% -- Student Loan
• $225,000 Total Debt
• Jerry has his budget under control, and now is ready to
start reducing debt.

4. Snowball
• Arrange debts by size. Pay extra on the smallest debt.
When the first debt is paid, add the payment to the
regular payment on the next debt.
• As the payment “snowballs” debt reduction accelerates.
• It is gratifying to end one debt at a time. This spurs you
to keep going.

5. Jerry Dettor

6. Avalanche
• Arrange debts by interest rate. Pay extra on the most
expensive debt. When it pays off, add that payment to
the regular payment on the next debt.
• Same as the first snowball approach, debt liquidates with
increased payments.
• The pace of debt reduction accelerates both from the
increased payments and also the elimination of high
interest debt first.

7. Jerry Dettor
• $ 20,000 4 years 4.5% -- Car Loan 3.
• $160,000 30 years 4% -- Condo Loan 4.
• $ 5,000 3 years 18% -- Credit Card debt 1.
• $ 40,000 10 years 8% -- Student Loan 2.
• $225,000 Total Debt
• Increase payments on the credit card debt first. Once
paid off, add that payment to the student loan, then the
car loan, and finally, start paying down the mortgage.

8. Iceberg
Cost of loan
(Interest) Term of Loan, Years (compounded monthly)
APR % 1 2 3 4 5 6 10 15 30
1% $5.42 $10.45 $15.49 $20.55 $25.62 $30.72 $51.25 $77.29 $157.90
2% $10.87 $20.97 $31.13 $41.37 $51.67 $62.03 $104.16 $158.32 $330.63
3% $16.32 $31.55 $46.92 $62.45 $78.12 $93.94 $158.73 $243.05 $517.77
4% $21.80 $42.20 $62.86 $83.79 $104.99 $126.45 $214.94 $331.44 $718.70
5% $27.29 $52.91 $78.95 $105.41 $132.27 $159.56 $272.79 $423.43 $932.56
6% $32.80 $63.69 $95.19 $127.28 $159.97 $193.25 $332.25 $518.94 $1,158.38
7% $38.32 $74.54 $111.58 $149.42 $188.07 $227.53 $393.30 $617.89 $1,395.09
8% $43.86 $85.45 $128.11 $171.82 $216.58 $262.39 $455.93 $720.17 $1,641.55
9% $49.42 $96.43 $144.79 $194.48 $245.50 $297.84 $520.11 $825.68 $1,896.64
10% $54.99 $107.48 $161.62 $217.40 $274.82 $333.86 $585.81 $934.29 $2,159.26
11% $60.58 $118.59 $178.59 $240.59 $304.55 $370.45 $653.00 $1,045.87 $2,428.36
12% $66.19 $129.76 $195.72 $264.02 $334.67 $407.61 $721.65 $1,160.30 $2,703.01
13% $71.81 $141.00 $212.98 $287.72 $365.18 $445.34 $791.73 $1,277.44 $2,982.32
14% $77.45 $152.31 $230.39 $311.67 $396.10 $483.61 $863.20 $1,397.13 $3,265.54
15% $83.10 $163.68 $247.95 $335.88 $427.40 $522.44 $936.02 $1,519.26 $3,552.00
16% $88.77 $175.11 $265.65 $360.33 $459.08 $561.81 $1,010.16 $1,643.66 $3,841.13
17% $94.46 $186.61 $283.50 $385.04 $491.15 $601.72 $1,085.57 $1,770.21 $4,132.43
18% $100.16 $198.18 $301.49 $410.00 $523.61 $642.16 $1,162.22 $1,898.76 $4,425.51

9. Iceberg
• Debt expense is calculated by BOTH interest rate and
term.
• Most people don’t realize the effect that term plays in
your debt. The majority of your total cost is “under water”
and hidden from view.
• So, using this calculator, determine which debt is costing
you the most.
• Pay down your most expensive debt first to reach
financial independence at the lowest total cost.

10. Jerry Dettor
• $ 20,000 4 years 4.5% -- Car Loan 4.
• $160,000 30 years 4% -- Condo Loan 1.
• $ 5,000 3 years 18% -- Credit Card debt 3.
• $ 40,000 10 years 8% -- Student Loan 2.
• $225,000 Total Debt
• Begin with the Condo Loan, changing the payment to
amortize (pay off) over 15 years instead of 30 years.
Next, raise the payment on the student loan to amortize
over 6 years. Credit card debt, and car loan will be paid
off before you get to them.

11. Caveats
• Cash Flow is King.
o Your expenses must be under control before debt reduction starts.
o Set up and use a budget. Edit until you have a budget that suits you.
o Include an emergency fund/sinking fund in your budget. This will cover those
occasional expenses like new tires, roof repair, etc. You can calculate how much
to set aside each month in your sinking fund, or save until you have X months of
expenses saved. X is calculated according to how likely a loss of income might
be for you, and how large your responsibilities (i.e. renter or home owner?,
children?). 2 to 6 months living expenses is typical.
• Lenders may hassle you.
o When you are pre-paying a mortgage, you are costing the lender serious money.
Don’t be surprised if they try to discourage you. Do it anyway.

12. Jerry Dettor Results
o $136,494.00 in interest
o $67,450.28 in interest
o $67,092.95 in interest
o $67,493.15 in interest
o $54,810.54 in interest
o $53,965.78 in interest
o $55,961.30 in interest
• Do nothing:
o Regular payments
• Pre-pay debt with $124.11 p/mo
o Snowball (size of debt):
o Avalanche (interest rate):
o Iceberg (total cost):
• Pre-pay debt with $424.11 p/mo
o Snowball (size of debt):
o Avalanche (interest rate):
o Iceberg (total cost):

13. Jerry Dettor Results
$124.11 per month, remaining debt:
o $169,054
o $149,626
o $149,362
o $151,062
o $127,014
o $ 50,142
o $ 49,816
o $ 54,886
• End of 5 years
o Do Nothing
o Snowball
o Avalanche
o Iceberg
• End of 10 Years
o Do Nothing
o Snowball
o Avalanche
o Iceberg

14. Jerry Dettor Results
$124.11 per month, remaining debt:
o $169,054
o $149,626
o $149,362 --- 34.19% ROI
o $151,062
o $127,014
o $ 50,142
o $ 49,816 --- 27.26% ROI
o $ 54,886
• End of 5 years
o Do Nothing
o Snowball
o Avalanche
o Iceberg
• End of 10 Years
o Do Nothing
o Snowball
o Avalanche
o Iceberg

15. Resources
Apps to track debt reduction:
https://www.thebalance.com/top-iphone-and-ipad-apps-for-
reducing-debt-1293761
Spreadsheets to track Debt Reduction:
https://www.vertex42.com/Calculators/credit-repair.html
Spreadsheets to calculate mortgages, including ARMs:
https://www.vertex42.com/Calculators/mortgage-
calculators.html

16. Milwaukee Bogleheads®
• A DIY investment group, followers of John Bogle's Index
investing strategies, the Milwaukee local chapter of
Bogleheads.
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17. Disclaimer
• All examples are for illustration purposes only and are
not investment recommendations.
• The views expressed in the presentation, are those of
the presenter, commenters, guests and participants and
may not reflect the views of the Bogleheads
organization.
• Use your discretion in using examples presented here
for your own investment purposes.
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