# Optimizing pay down of multiple loans

Most resources seem to indicate that you want to pay down loans in order of decreasing interest rate. However, I did some manual calculations and found I should be paying down the loans based on the size of their interest (not the interest rate). Am I miscalculating something?

For example, I have loan A for \$3,500 at 4.66% and loan B for \$1,300 at 5.00%. Both loans have a minimum payment of \$40. Below is the amortization schedule for the first 20 months or so.

``````         Loan A         |     Loan B
#  Remaining  Interest   Remaining  Interest
01  \$3,500.00   \$13.59      \$1,300.00   \$5.42
02  \$3,473.59   \$13.49      \$1,265.42   \$5.27
03  \$3,447.08   \$13.39      \$1,230.69   \$5.13
04  \$3,420.47   \$13.28      \$1,195.82   \$4.98
05  \$3,393.75   \$13.18      \$1,160.80   \$4.84
06  \$3,366.93   \$13.07      \$1,125.64   \$4.69
07  \$3,340.00   \$12.97      \$1,090.33   \$4.54
08  \$3,312.97   \$12.87      \$1,054.87   \$4.40
09  \$3,285.84   \$12.76      \$1,019.26   \$4.25
10  \$3,258.60   \$12.65      \$  983.51   \$4.10
11  \$3,231.25   \$12.55      \$  947.61   \$3.95
12  \$3,203.80   \$12.44      \$  911.56   \$3.80
13  \$3,176.24   \$12.33      \$  875.36   \$3.65
14  \$3,148.58   \$12.23      \$  839.00   \$3.50
15  \$3,120.80   \$12.12      \$  802.50   \$3.34
16  \$3,092.92   \$12.01      \$  765.84   \$3.19
17  \$3,064.93   \$11.90      \$  729.03   \$3.04
18  \$3,036.84   \$11.79      \$  692.07   \$2.88
19  \$3,008.63   \$11.68      \$  654.96   \$2.73
20  \$2,980.31   \$11.57      \$  617.68   \$2.57
....
``````

If I make an extra payment of \$500 to loan A, I reduce the principal to \$3,000. I've essentially skipped the first 18 payments and thus I've saved about \$228.63 in interest payments.

For loan B, the same \$500 would skip about 14 payments, totaling \$62.50 in interest. Because of the low balance, most of my payment was already going towards the principal.

• Yes, you must be miscalculating, but we can’t tell what you’ve done wrong unless you show your full workings. Commented Dec 8, 2018 at 8:18
• Once loan B is paid off, you put its \$40 payment toward the other loan. Every single month. Commented Dec 8, 2018 at 23:33