More of an accouting question than an excel question but I'm someone here will know.

P

punter

Hi guys,

I'm trying to figure something out for my girlfriend. When I starte
seeing here in early 2002 she had $43,000 worth of various debt (credi
cards, personal loans, car payment, ect). It is all gone now and I'
trying to show here the rate of return she got on paying it off. I a
assuming 12% interest rate for the $43,000 but I can't quite make th
numbers work to come up with how much she saved by paying this off.

Hope I haven't lost anyone. Here is an example of what I'm trying t
prove: If you bought a stock at $50 and it went to $75 you made 50%.
How much did she make (or save) by paying it all off and killing thes
interest payments?

Thanks guys.

Eddi
 
B

Bernie Deitrick

Eddie,

A good estimate is the average yearly balance times the interest rate,
summed up over the years. So if she paid off the debt in a linear fashion:

2 years ago 43K
1 year ago 21.5K
Now 0K

what she saved would be

=(43000 + 21500)/2*0.12 + (21500 +0)/2*.12

or about $5,160.

Because of the period (2 years) that works out to be the same as one year's
interest on the full amount.

HTH,
Bernie
MS Excel MVP
 
P

punter

Thanks. Does that formula include the compunding interest on th
principal that was accuring every month
 
J

jeff

Hi,

Bernie is correct.

Also, you can think of it this way:
If she paid the debt off over, say 72 months, she
would have paid out over $60,500 in principal and
interest. So it would cost her around $17000 out
of pocket over and above the $43,000.

Had she left any balance of the $43,000 in a savings
account, drew down her $840 monthly payment, and
received, say 3%/yr interest, she would have received
about $3000 in interest payments over the 72 months,
so would still have paid out $14000 out of her own
pocket.

Now, anything she puts into savings is hers (and the
government's!).

jeff
 
B

Bernie Deitrick

Punter,

No, but it's an estimate, not a calculation. To calculate the actual
savings, you would need to have an accurate record of all her payments, when
and how much, and actual rates. Plus you need to account for the
'opportunity' cost of paying off the debt and not making interest on her
money in a savings account or other paying investment. She could have
bought stock that doubled in the same time period, in which case she lost
money by paying off her debts.... Way too complicated, so just tell her
"Over $5,000 Dollars!"

HTH,
Bernie
MS Excel MVP
 
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