How debt payoff is calculated
Each month, interest accrues on the remaining balance at the stated rate. Your payment first covers that month's interest; the remainder reduces the principal. The calculator iterates month by month until the balance reaches zero.
Monthly interest = Balance × (APR ÷ 12)
If monthly interest exceeds your payment, the balance grows — this is why minimum payments on high-rate credit cards can take decades to clear.
Worked example: Avalanche vs. minimum payments
Balance: $12,000 | APR: 22% | Minimum payment: $240/month (2% of balance)
| Strategy | Monthly Payment | Months to Pay Off | Total Interest |
|---|
| Minimum (2%) | ~$240 declining | ~22 years | ~$11,800 |
| Fixed $400/month | $400 | 42 months | $4,680 |
| Fixed $600/month | $600 | 25 months | $2,680 |
| Fixed $400 + $100 extra | $500 | 32 months | $3,540 |
Common mistakes to avoid
- Paying only the minimum. On a $12,000 balance at 22% APR, paying the minimum 2% declining payment means you pay back nearly double — taking over 20 years. Even $50 extra/month cuts years and thousands in interest.
- Not knowing your true APR. Credit card APR can differ from the promotional rate, the cash advance rate, and the penalty rate. Always use the standard purchase APR for this calculation.
- Ignoring the avalanche method. If you have multiple debts, paying off the highest APR first minimises total interest paid. The calculator models one debt — list all debts and tackle the highest-rate one first.
- Making a large payment then stopping contributions. Consistency beats lump sums for payoff speed because each payment reduces the balance on which future interest accrues.
- Refinancing without calculating the break-even. If you consolidate at a lower rate but extend the term, you may pay more total interest. Always compare total repayment cost, not just monthly payment.
Related tools and reading
After clearing high-rate debt, redirect those payments into the Compound Interest Calculator to see what wealth they build. The Budget Planner helps identify cash to accelerate debt payoff. The Take-Home Pay Calculator confirms how much of your income is available. Read our Avalanche vs Snowball Method guide for a detailed comparison of debt payoff strategies.