# Multiple loans, multiple payers - how to snowball fairly

My brother and I both have a large sum of student loan debt. I have more than he does and my interest rates are slightly larger as well. We are both attempting to snowball our debt separately. It occurred to me that we may be able to accelerate paying off our student loan debt if we snowballed together. We could both tackle one loan together and then focus on the next and as a result, both end up with less interest to pay in the long run.

However, I'm stuck on how to implement this idea in a fair way. We both pay different amounts each month. Is there a way we can take into account our total balances, interest rates, and the amount paid to keep track of what percentage of payments are going towards each other's loans?

As an example let's say I have four loans at \$10,000 at 10% APR (A, B, C, and D), and he has four loans at \$5,000 at 5% APR (E, F, G, and H). So we have a total of \$60,000 due, \$40,000 of which is mine.

1. Does anyone have an equation for this or can anyone better explain why this will or will not work?
2. Do we have to pay proportionally to our debt at all times in order to make this work? If we pay equal amounts, at a certain point he should stop paying because he's done with his portion and I should continue; how will we know when that point is?
3. This should help cut the amount of interest we pay. Will it actually do that or will it only benefit the person with the higher interest rates?
• How much interest will you save? How long will it take you to pay them off individually? Is it worth all of this hassle? What if you pay off all of his loans first and he decided he doesn't want to participate anymore? Jun 21, 2017 at 13:48
• Will there still be minimum payments due on the lower interest loans while you're attacking the high interest ones? Jun 21, 2017 at 13:51
• @DStanley 1. Not sure. 2. 20 years+ probably. 3. Probably not. 4. That's a great question, I'm not sure.
– stu
Jun 21, 2017 at 15:46
• At the risk of being grim, US federal student loans are forgiven at death, so if you pay one person's and they die soon after, then the other person comes out behind (financially that is). Jun 22, 2017 at 18:54
• Just how much do you trust your brother? Or conversely, should your brother really trust you? Bottom line, this seems like a really bad idea. Jun 24, 2017 at 4:08

First off, your commitment to paying down debt and apparent strong relationship with your brother is admirable. However, I think you are overcomplicating your situation and potentially endangering your relationship by attempting to combine debts in this way.

You could consider a simple example where you have interest bearing at 5% and your brother has interest bearing debt at 10%. If you both pay down his higher interest debt first, and then both pay down your debt after, then clearly you will have paid less interest combined. But, by waiting to pay off your debt until later, you have accrued more interest yourself. So who has saved money by doing this? Your brother. You will have paid (let's say, without getting into balances) \$50 extra interest to save your brother \$70 in interest.

So why would you want to give your brother \$50? Total interest savings between both of you in this simplified example are \$20. So, in theory your brother could pay you \$60 after the fact, effectively meaning you end up \$10 ahead, and your brother ends up \$10 ahead. Here, you end up in a position where you could still say, in theory 'we both came out ahead'. But what if your brother loses his job while you're both paying off your debt, and he can't help any more? Does he accrue some type of calculated interest until he pays you back? What if he's off work for 2 years and still owes you 30k? What if he just never makes his payments to you on time? At what point do you resent your brother for failing to uphold his end of the deal?

Money and friends don't mix. Money and family mixes even worse.

In rare circumstances where you absolutely must mix family and money, get everything in writing. Get it signed, make it legal. Outline all details of the transaction, including interest rates, and examples of how the balances calculate. In 5 years when things go haywire, following the letter of the law is what will keep you from becoming enemies. But with family, often people have an expectation that "while we agreed I would pay x, he's my brother, so he should take pity on me and allow me to pay only y, if I need to".

Finally, to your question about how to calculate amounts to pay: it will be very complicated. You will need to track minimum balance payments, interest rates, and even potentially the lost income which one of you gives up to pay down the other's debt. You could do these things in a simplified way close to what I've set out above, but then ultimately one of you will lose out. If you pay down your debts first, how can you calculate the lost living potential for your brother, who might want to buy a house but can't save for a down payment for an extra year? What if he has to move, and without sufficient down payment, he needs to pay extra Mortgage Insurance on his loan from the bank? Will you compensate him for that?

My recommendation, if you haven't caught it yet, is Do not do this. Your potential savings are not going to be worth the potential heartache of breaking your relationship with your brother.

Instead, look at joining your minds, not your money. Set goals for yourselves individually, and hold each other accountable. Make this an open conversation between yourselves, as it can be difficult to talk about finances with other people. Your support will help the other person, and hopefully help keep you on track as well.

To provide numerical context for potential savings, which you appear to still want, consider the numbers you've provided [you have 40k debt at 10%, your brother has 20k of debt at 5%]. Let's assume you each can pay up to 20k against the principal of your loans each year. Finally assume for simplicity that you also have enough to pay off interest as it gets charged [so no compounding], and you pay in even instalments each year. Mathematically that means your interest each year is equal to your interest rate * your average annual balance.

If you each go alone, then you will accrue 10% on an average balance of [(40k+20k)/2] = 30k per year, which equals 3,000 in interest in year 1, then [(20k+0)/2] = 10k * .10 = 1,000 interest in year 2. Total interest for you = 4,000. Your brother will accrue [(20k+0k)/2] = 10k * .05 = 500 in interest in total. Total interest for both of you combined would be 4,500.

If you pool your debt snowball, then you will clear your debt first. So the interest on your debt would be [(40k+0k)/2] = 20k * .1 = 2,000. Your brother's debt would fully accrue 5% of interest on the full balance in year 1, so interest in year 1 would be 20k * .05 = 1,000. In year 2, your brother's debt would be cleared half way through the year; interest charged would be [(20k+0k)/2] = 10k * .05 * 50% = 250. You would then owe your brother 10k, which you would pay him over the remainder of year 2. His total interest paid to the bank would be 1,000 + 250 = 1,250. Total interest for both of you combined would be 3,250.

In a simplified payment example using your numbers, maximum interest savings would be about \$1,250 combined. How you allocate those savings would be pretty subjective; assuming a 50:50 split, this yields \$625 in savings to each of you. If you aren't able to each save 20k per year, then savings would be greater for snowballing, because otherwise it will take you even longer to pay off your high interest debt. This is similar to your brother loaning you 20k today that you can use to pay off your debts, after which you pay him back so he can pay off his. Because you will owe him 20k for 2 years, but an average of ~10k at any one time [because he slowly advances it to you today, and you slowly pay him back until the end of year 2], at \$650 in benefit passed to your brother, this is roughly equivalent to him loaning you money at 6.5% interest.

• Thanks for the thorough response. This is what I presumed would be the conclusion to this question. I wanted to know if the benefits of interest reduction might somehow outweigh the risks. They clearly do not and we will keep our finances separate. Thanks again.
– stu
Jun 21, 2017 at 15:40
• Long time follower of this SE, and I know these comments aren't warranted but I finally signed up just to upvote your answer.
– Tas
Jun 22, 2017 at 1:04
• Right on the money. "Hold each other accountable" - that is likely to save you more money than a complicated joint snowball scheme. Personal finance is really more about behavior than math. That's why it's 'personal'. Jun 22, 2017 at 13:52
• Building off of this answer, if you must mix money with friends/family a good rule of thumb is to only ever lend as much money as you are willing to lose and don't expect to see it again if you want to maintain the relationship. Jun 22, 2017 at 14:27
• Completely agree. Just trying to work out the numbers would give me a head ache and the risk of things going wrong would just be too high. In addition to holding each other accountable you could look to actually help each other control expenses and stick to a budget. Can you get an apartment together to share utilities and rent? Can you coordinate cooking meals so you guys aren't eating out a lot? Can you work together to make extra money on side jobs? Jun 22, 2017 at 21:18

I concur with the other answers about not mixing family and money: the one whose loans are paid off second will be taking the credit risk of the other not paying/being able to pay. There may also be tax implications.

That said, if you do still want to do this, I think there's a fairly straightforward way to account for the payments. With your scenario, your brother should make you a personal loan at some interest rate inbetween 5% and 10%. That loan would be tracked independently of the actual student loans. Any money that your brother transfers to you to pay off your loans, add to that personal loan, and later on once your loans are paid off you start repaying the loan to him and he uses the proceeds for his own loans.

The interest rate will determine how the benefit of paying off the 10% loans is shared: if the rate is set at 10% then your brother will get all the benefit, if 5% you will get all the benefit, and 7.5% would roughly share it out.

This means that you can still manage your own student loans separately. Your brother can choose how little or much to commit to the snowball rather than his own loans (of course he should first make the minimum payments on his own loans). Anything he does loan you benefits you both if we ignore the credit and tax issues - he gets more than the 5% interest on his own loans, and you pay less than the 10% interest on your loans.

You'll need to track the payments each way on this personal loan and apply interest to it every so often, I'd suggest monthly (beware that the monthly equivalent of 5% annual interest is not 5%/12, because of compounding).

• This is elegant and simple. There are online calculators that can convert APR to AER or vice versa if needed. Jun 22, 2017 at 20:12
• This is an effective strategy and I think more clearly highlights what the OP is actually suggesting - that his brother loan him money to pay off debts to a 3rd party. As you say, by putting the interest rate somewhere below the OP's 3rd party 10% rate, they both can theoretically share in the benefits of doing so, if they are able to maintain their relationship after bringing money into it. Jun 22, 2017 at 20:35

This sounds like an accounting nightmare to be 100% precise. With each payment you're going to have to track:

• How much interest each person is paying, and on which loans
• How much principal each is paying, and on which loans
• How much principal each loan has remaining.

If you can account for those, then the fair thing to do is for one person to stop paying after they have paid the amount of principal they had at the beginning of the process, or possibly after they have paid an amount equivalent to the total principal and accrued interest they would have paid if they paid their loans individually.

The problem is, one of you is likely going to pay more interest than you would have under the individual plan. In the example you gave, if your brother pays off any of your loans, he is going to be paying more in interest than if he paid on his 5% loans. If you pay the highest rate loans first, whoever has the lower total balance is going to pay more interest since they'll be paying on the higher rates until they've paid their "fair share".

I don't see a clean way for you to divvy up the interest savings appropriately unless you trueup at the very end of the process.

Math aside, these types of agreements can be dangerous to relationships. What if one of you decides that they don't want to participate anymore? What if one of you gets all of their loans paid off much earlier - they get the joy of being debt free while the other still has all of the debt left? What if they then don't feel obligates to pay the other's remaining debt? Are you both equally committed to cutting lifestyle in order to attack these debts?

In my opinion, the complexity and risk to the relationship don't justify the interest savings.

• Great questions. In regards to the "fair share" question: that is exactly what I am interested in answering. If he has 5% loans, he should not be accountable for my 10% interest rates. That's what I would love to better understand; how do you calculate that distribution? Needless to say, there's a clear conclusion from you and all the answers and that is don't do it. So we definitely will not. Thanks for the response.
– stu
Jun 21, 2017 at 15:44
• There are probably ways to do it more fairly, but the interest savings is probably not worth the hassle (or the energy trying to figure it out) Jun 21, 2017 at 15:46
• Assuming someone is decently competent with a spreadsheet and no one misses a payment and no one makes an irregular payment, it should be very simple to calculate a payment schedule. I'm not saying the result is different (it's not worth the risk to the relationship) but I don't think it's too complicated to calculate... Jun 22, 2017 at 7:53
• If they really wanted to do this, the brother could lend him whatever he can afford at an interest rate halfway between the rates of their student loans. I think that's the simplest way to handle it and it makes completely clear how much they each profit. Jun 22, 2017 at 12:48

The only fair thing to do is to let each of you pay their own loans. That way, your brother will probably get out of debt faster and starts saving or investing (assuming equal down payments), while you'll be stuck with your loan for a while longer.

If you want to minimize the interests you have to pay, you could simply borrow money from your brother. That way, he'll contribute towards your loans, and you will know exactly how much you owe him. Your brother may lend you money interest-free, or you could agree on an interest rate which is lower than what you pay on your loans, which will somewhat compensate your brother and still be beneficial to you. It still won't be fair though, because your brother might be able to invest his extra money with better interest rate, and lending money to you would prevent that.

This sounds to me like a very nice little job for a computer. This assumes that you have some experience of programming a computer, which I believe you do. A program like this does not require a lot of programming experience; a beginner in any simple scripting language could implement it, which is why I think it is a fairly general answer.

You can set up a small simulation with either your real loans, or the examples you have given. Then have the computer work through the situation at a monthly time step until the debt is paid, and have it output all the interesting information per month.

• Remaining debt: total, per person, and per loan
• Total interest paid
• Interest paid this month
• ... etc

Then you set it up with your different payment scenarios: each paying proportionally, each paying their own debt separately, paying them in different orders etc.

When you have these graphs, it should be possible to answer your main questions:

1. Do we have to pay proportionally to our debt at all times in order to make this work? If we pay equal amounts, at a certain point he should stop paying because he's done with his portion and I should continue; how will we know when that point is?
2. This should help cut the amount of interest we pay. Will it actually do that or will it only benefit the person with the higher interest rates?

The more information you add to this simulation, the more effective it gets. For example, I'm sure there are various tax deductions that you can make, depending on how much each of you pay, that depends on all sorts of things (location, income, age?).

• If the OP wants to optimize the total interest paid, there's no need for a computer: he and his brother should both pay off his loan first, then the brother's. I wouldn't agree to do this though if I were the brother. Jun 23, 2017 at 11:47