Excel Calculator: Full Loan Pay Off or Invest it All
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Excel Calculator: Full Loan Pay Off or Invest it All

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The actual thing that is being compared in this excel model is the total value of your future investment.

There are only 2 possible scenarios that you can start off on.

1. Pay off all your current debt and then make an investment with the remaining cash.

2. Don't pay off any of your debt and make a larger up-front investment.

Assumptions:

1. The 'investment' being tested has an annual % rate that you enter and compounds monthly.

2. The debt service you have to pay if you choose the option to pay off your loans over time instead of up front is used to add to the investment in scenario 1.

3. As you start to pay off loans in scenario 2, the model assumes the cash that no longer has to be paid for debt service is invested in the 'investment'.

4. As soon as 100% of the debt is paid off, neither scenario will have any more monthly contributions to the 'investment' other than compounding the monthly interest.

Characteristics of Scenario 1

It will result in a lower starting investment but the cash flow that is now available because you don't have to make monthly debt payments can be directly invested into the 'investment' so it will start to grow at a much faster pace than scenario 2.

Characteristics of Scenario 2

It will result in a higher starting investment but because you are still making monthly debt service payments it won't grow as quickly as scenario 1.

Conclusion

In general, this lets you adjust various debt service amounts with varying interest rates and terms, initial available cash, and expected annual rate of return on a given investment so you see how it impacts your ability to grow a given investment relative to the debt.

The two scenarios are essentially racing to which can get to the highest future investment value by the time all the debt is paid off or the highest net investment amount (investment less current debt) at a point in the future. All the variables will effect which scenario 'wins'.

The purpose of this model is to try and look at real \$ values in a real scenario in order to help decide possible actions to take when you want to invest your money but are also under burden of material debt.

You can plug in up to 5 different loans.

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