Debt Payoff Calculator

Debt avalanche: pay minimums on all debts, put every extra dollar toward the debt with the HIGHEST interest rate. Once paid off, roll that payment to the next-highest rate debt. Mathematically optimal — minimizes total interest paid. Example: Credit card A (20% APR, $3,000), Credit card B (15% APR, $5,000), Car loan (7% APR, $10,000). Avalanche order: A → B → Car. If you have $500/month total: A gets all extra until paid off, then B, then car. Total interest saved vs minimums only can be thousands of dollars.

Debt snowball: pay minimums on all debts, put every extra dollar toward the debt with the SMALLEST balance. Once paid off, roll that payment to the next-smallest balance. Pays more total interest than avalanche, but provides psychological wins early — each paid-off account is a motivation boost. Research (Dave Ramsey popularized this): people who use snowball are more likely to stay motivated and complete debt payoff. Use snowball if motivation is a challenge; use avalanche if you want to minimize total interest paid mathematically.

Credit card APR (Annual Percentage Rate) is divided by 365 to get daily rate. Balance is multiplied by daily rate each day. Interest is added to balance at end of billing cycle if balance not paid in full. Example: $1,000 balance at 20% APR: Daily rate = 20%/365 = 0.0548%/day. Monthly interest ≈ $16.44. Over a year paying only minimums: balance barely decreases because most payment goes to interest. Pay in full each month: $0 interest (grace period). Credit card interest compounds daily — far more expensive than simple interest loans.

Extra payments dramatically reduce interest on long-term debt. Example: $10,000 credit card at 20% APR. Minimum payments only (2% of balance): takes 30+ years, pays $14,000+ in interest. $300/month: paid off in 4 years, $2,900 in interest. $500/month: paid off in 2.5 years, $1,800 in interest. General rule: doubling your payment more than halves payoff time. For mortgages: one extra payment per year saves years of payments and thousands in interest. Always apply extra payments to principal, not future payments.

Debt-to-income (DTI) ratio = monthly debt payments ÷ gross monthly income. Lenders use DTI to evaluate creditworthiness. Threshold guidelines: DTI < 28%: excellent, easy to get new credit. DTI 28–36%: good, most lenders approve. DTI 36–43%: caution zone, some lenders may decline. DTI > 43%: difficult to get new credit. Mortgage-specific: front-end ratio (housing costs only) should be < 28%; back-end ratio (all debt) < 36%. DTI above 50% is a warning sign that debt may be unsustainable without intervention.