Debt comes in many forms—credit cards, mortgages, car loans, student loans, etc.—and it can be an ongoing source of stress, but eliminating debt doesn’t have to consume you entirely. Here are some tools and tips that’ll help to pay down your debt so you can lounge in the comfort of a financially free life.
How It Works
Though there are multiple debt payoff methods, the majority of them consist of paying more toward your debt than the monthly minimum. This way you can get rid of debt faster and save some money on interest. This calculator shows how long it will take to pay off a loan and how much accrued interest will need to be paid by the end of the loan’s payoff period.
- Enter how much money is currently owed on the loan in the “Loan Balance” text box.
- Adjust the sliders to match the details of the loan.
- Move the “Added Monthly Amt” slider to see how paying a bit more each month will save money on interest and change the final payoff date.
How to create a debt payoff plan?
As discouraging as it may seem to focus on paying off student loans and credit card balances, it’s a needed skill. Here are some methods that will help boost your motivation and encourage you to wipe the slate clean and reduce overall debt.
- Debt Snowball Method: This method has you start small and work your way up, meaning, though you continue making monthly payments on all your debt, you’ll use any extra funds to make additional payments on your smallest debt. After the smallest debt is paid off, you’ll roll those funds over to help pay off the next smallest debt and so on until all your debt is resolved.
- Debt Avalanche Method: Everyone’s heard of an avalanche and how it wrecks everything in its path. For this method, you’ll continue making minimum payments on your debt and use any extra funds to target the debt with the highest interest rate, then roll those funds into the next highest and the next.
Each of these methods is useful in its own way, but how you choose to pay down your debt depends on your own unique situation. You can learn how to customize and implement a payoff plan specific to you by exploring more debt payoff strategies with this Get Out of Debt Coach.
Debt Payoff Formula
[1-(1/(1+i/12)^(n_12)]/(i/12)]
i=annual credit card interest rate
n=the number of years you want to pay your credit card off.
How long will it take to pay off a debt?
Though there is no perfect payoff term, a good goal to set for debt payoff is 36 months. However, everyone's circumstances are different and the important thing to keep in mind when it comes to paying off your debt is the sooner you can do it, the better. Making extra payments or paying more than what you owe each month are two great ways to avoid excessive interest.
In fact, in some cases, only paying the minimum does little for your debt except paying the interest owed.
Let’s say you owe $5,000 in credit card debt with an APR (Annual Percentage Rate) or interest rate of 15%. If you carry a steady month-to-month balance, you’ll owe $750 in interest by the end of one year. This means roughly $62.50 of your payment each month will go toward interest. If you only pay the minimum owed that month—let’s say it’s $75.00—it’s likely you’re only paying off interest which won’t help you accomplish your goal of paying off your debt quickly.
An early debt payoff might seem out of reach, but with a little discipline, it is possible. Adopting the habits of exploring your options and sticking to your goals is the best way to achieve your desired payoff outcome. To find your own debt payoff groove and what motivates you, try these other great tips on how to manage your debt!
Disclaimer
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