This debt calculator can estimate how long it will take you to pay off your debt or credit card balance by making a minimum monthly payment or by a time frame you prefer to be debt free, case in which it will return the level of your regular payments. There is in depth information on this subject below the form.

## How does this debt calculator work?

This is a very flexible personal finance tool since it may help get an idea when you will pay entirely your balance in case you intent to establish a desired min. monthly payment or it can calculate your reguloar payment in case you specify a period to payout your credit card balance or any type of loan such as personal, auto or home.

Basically all you have to do is input the current balance you owe together with the annual interest rate and one of the two options available. Depending on the chosen method to repay your principal this debt calculator applies the algorithm explained below:

- Case when the
**desired monthly payment**value is given, the tool will apply these formulas:

- Estimated payoff time marked with “A”.

A = log(((-1) * pmt * (1 + rate * type) / rate - fv) / (pv + pmt * (-1) * (1 + rate * type) / rate)) / log(1 + rate)

Where:

pmt is the value from Desired monthly payment field.

rate is Annual interest rate/1200

type is equal to 0 when the user selects “At the end of each month” within the Pay moment, and with 1 when user chooses “At the beginning of each month”

fv is by default 0

$pv is the value from Balance owed.

- Estimated payoff date is the estimated calendar date expressed as month & year, obtained by adding the number of months from "A" to the current users’ local time.

- Total interest paid marked with “B”

B = (A*pmt) – pv

- Total paid marked with “C”

C = A*pmt

- Case when the
**desired term to payout**is known:

- Estimated monthly payment marked with “D”

D = (pv *rate)/[1 - (1+rate)^{-N}]

Where N is the term expressed in months

- Total interest paid marked with “E”

E = (D * N) – pv

- Total paid marked with “F”

F = D * N

- Estimated payoff date is the approximate calendar date obtained by adding the number of months from Desired payoff time to the current users’ local time.

## Example of a calculation result

In case of a $100,000 balance to be paid with an interest rate of 5%, by:

- Filling in an assumed monhtly payment of $1,000 this tool will return the following info:

■ Estimated payoff time: 130 months (10 years and 10 months);

■ Estimated payoff date*: October, 2025;

■ Total interest paid: $30,000.00;

■ Total paid: $130,000.00;

- Specifying a term of 240 months to be repay, the application will display the details listed below:

■ Estimated monthly payment: $659.96;

■ Estimated payoff date: December, 2034;

■ Total interest paid: $58,389.38;

■ Total paid: $158,389.38;

* Please note that the estimated payoff date is calculated by assuming that you will start paying by the current month.

## Strategies to payoff earlier your balance

Basically there are two types of strategies everyone may analyze when trying to decide how to payoff earlier debts, which all aim to ensure some savings in interest while getting a zero balance in a shorter term.

- Deciding for a minimum regular payment (monthly or with the desired frequency) as higher as possible, or higher than initially negotiated with the creditor. By this strategy the debtor adds some extra payment or sets up a higher level of regular payment amount which finally helps to payout quicker than initially expected. This strategy is preferred by people that do not search for a specific term, but that are rather interested in paying as much as they can on a regular basis.
- Deciding for a specific time to payoff which is used by people that are willing to end credit balance within certain time frame. By this approach people establish the optimal regular payment value that can ensure the principal is paid within the term settled.

## Debt payment types

Taking account of the strategies detailed above, the debt payment types can be classified in the following types:

- One time payment which is a full transaction at once of the balance owed;
- Fixed regular payment (weekly, bi-weekly, monthly, bi-monthly, quarterly, semi-annually or annually) which is a constant regular amount paid by the negotiated frequency during the agreed term.
- Variable regular value (weekly, bi-weekly, monthly, bi-monthly, quarterly, semi-annually or annually) which is usually the one consisting of a fixed regular payment plus some extra contribution, but it can consist as well in a smaller amount than the negotiated one.
- Flexible payment which consists in an value established by the debtor, paid with or without a certain frequency previously negotiated.

## How to be deft free earlier?

You may choose to pay a higher amount on a regular basis, make extra payments, you can set up a shorter term to payoff or in certain conditions you may choose to refinance your debts.

Personal financial advisors recommend refinancing your balance ONLY in case the cost to borrow money through new loan is smaller than the interest paid on the current debts. For instance in case of a credit balance usually the cost is higher than in case of a personal loan, that is why whenever someone intents to payout within a longer term (for example not paying in just a few months but in 1 or 2 years), should think to refinance and get a personal loan with a smaller interest rate and make with it a onetime payment of the credit balance. The same in case of mortgage loans taken in the past at higher interest rates than the current rate. In such a context, it is recommended refinancing mortgage because they usually have a term of up to 25 - 30 years, that if refinanced may result in significant savings in interest.

02 Dec, 2014