How the Debt Payoff Calculator Works
When you owe money on several debts, such as credit cards, a car loan and student loans, the way you pay them off matters. Paying only the minimums keeps you in debt for years, and interest keeps growing. The Debt Payoff Calculator builds a plan: it adds an extra amount to your payments and puts it against one debt at a time, using one of two well-known strategies. It then shows how soon you will be debt-free, and how much interest you save.
What you enter
- Your debts: for each one, the balance, the yearly interest rate and the minimum monthly payment. You can enter up to five. Leave a row empty if you do not need it.
- Extra you can pay each month: money on top of all the minimums. Use 0 to keep to the minimums.
- Strategy: which debt gets the extra first.
The two strategies
- Avalanche: the extra goes to the debt with the highest interest rate first. This costs the least in interest, so it is usually the cheapest.
- Snowball: the extra goes to the debt with the smallest balance first. It clears debts quickly, which gives a feeling of progress that helps many people stay on track.
In both, every debt still gets its minimum. When one is paid off, its minimum and the extra roll into the next debt, so the payment on the target debt grows like a snowball or an avalanche.
How the calculator works, month by month
1. Add a month of interest to each debt: balance x yearly rate / 12 2. Pay every debt its minimum 3. Put what is left of the monthly budget on the debt first in line 4. When a debt reaches zero, its minimum joins the budget for the next debt
The monthly budget is the total of all the minimums plus your extra. It stays the same every month, until everything is paid. The calculator repeats this until every balance is zero. If your payments do not even cover the interest, the debt would never be paid off, and the calculator tells you.
A worked example
You have four debts, and you can add $300 a month to the minimums:
| Debt | Balance | Rate | Minimum |
|---|---|---|---|
| Credit card A | $6,500 | 24.99% | $195 |
| Credit card B | $2,800 | 19.99% | $84 |
| Car loan | $9,000 | 7.5% | $250 |
| Student loan | $12,000 | 5.5% | $130 |
Together the debts total $30,300. The minimums are $659, and with the extra $300, the monthly budget is $959.
| Plan | Debt-free in | Total interest |
|---|---|---|
| Avalanche | 37 months (3 years 1 month) | $4,450.81 |
| Snowball | 37 months (3 years 1 month) | $4,622.63 |
| Minimums only | 121 months (10 years 1 month) | $10,893.62 |
The extra $300 a month makes the payoff 7 years faster and saves about $6,443 in interest. The avalanche saves $171.82 more than the snowball, and both are done in the same 37 months here.
The order the debts are cleared
| Debt | Avalanche | Snowball |
|---|---|---|
| Credit card A | month 16 | month 20 |
| Credit card B | month 20 | month 8 |
| Car loan | month 26 | month 26 |
| Student loan | month 37 | month 37 |
Snowball clears the small credit card B by month 8, which feels good. Avalanche attacks card A, which has the highest rate, and saves interest.
Chart: your total debt over time
The avalanche plan from the example. The debt falls faster and faster as payments roll over:
Start ████████████████████████████████████████ $30,300 Month 6 ███████████████████████████████████ $26,157 Month 12 █████████████████████████████ $21,633 Month 18 ██████████████████████ $16,687 Month 24 ███████████████ $11,383 Month 30 ████████ $5,882 Month 36 (almost done) $226 Month 37 debt-free
Tips
- Pick the method you will stick with. The cheapest plan is only best if you follow it.
- Keep paying the same total, even when a debt is cleared. That is what makes the snowball grow.
- Avoid new debt. The calculator assumes you do not borrow more.
- Look at balance transfers or consolidation, if they lower your rates without high fees.
What this calculator does not include
- Changing interest rates, such as on a credit card with a variable rate or an introductory rate that ends.
- New charges, late fees and penalties.
- Minimum payments that change as the balance falls. The calculator keeps each minimum fixed, until the debt is nearly paid.
- Interest calculated daily. The calculator uses monthly interest, so a lender's figures can differ slightly.
This tool gives an estimate for general information only. It is not financial advice. Your lenders' statements have the exact figures.