If you've come to this page expecting a lecture about the dangers of excessive debt, you've come to the wrong page.
I designed the Accurate Debt Reduction Calculator (ADRC) so that anyone who has multiple loans can see for themselves if they would save money by changing their payback plan.
If you want a lecture, you can find plenty of blog posts about problems resulting from over-borrowing by doing a quick web search. For example, consider this CNBC post about personal debt or this one from Nav about business borrowing.
Instead of lecturing, I'll show you strategies for accelerating your repayment to save you interest charges. Two such plans commonly called the debt snowball, and the debt avalanche may save you a bundle. And they don't even require a change in the total monthly payment.
Wouldn't it be sweet to save perhaps thousands of dollars?
Wouldn't it be even better to save thousands of dollars and not change your current monthly payment total - either now or ever?
The numbers don't lie.
The multiple debt calculator will create a single payment schedule that gives you a personalized, step-by-step plan to reduce and then eliminate debt.
And remember, you do not need to be in financial difficulty to benefit from the knowledge you will gain when using this calculator. If you have multiple outstanding loans, you're a smart consumer if you spend a few minutes with this calculator. By reviewing the loan payment schedule, you'll learn how various payback strategies can impact your finances.
The webpage preloads the calculator with sample data so you can quickly try it and understand the various options. I suggest you take a few minutes to read the below before entering your loans.
If you are the type of person who likes jumping in and learning by trying, then you may want to skip ahead to Pointers on using the ADRC.
On the other hand, if you want to make sure you don't miss any features this debt payoff calculator offers, then please keep on reading.
(If you started to enter your information, and now you want to follow along, hit your browser's refresh button to reload the page.)
FACT: Debt is a way of life
The fact is, most folks in Western societies will borrow money at some point in their lives, and this is not inherently good or bad. Per WalletHub, according to the Federal Reserve, as of 2023, 77% of Americans hold some form of debt, made up of mortgages, car loans, unpaid credit card balances, medical and legal bills, student loans, or a combination of those.
The key is for borrowers to manage their loans and reduce borrowing costs to whatever extent possible.
How can this be done?
Let's look at a not atypical couple; we'll call them Ron and Amanda, who are recent college graduates. They have college loans, two car payments, and one credit card with a balance resulting from expenses associated with their cross-country move and from buying a few necessities for their new apartment.
Our not-atypical couple carries student loan debt equal to the average Class of 2023 graduate. According to Education Data Initiative, that's $37,650. For this illustration, we'll assume they are paying an interest rate of 4.45%.
Amanda and Ron both need cars to get to their jobs, and they borrowed a little less than $30,000 to purchase two used ones. Again, the interest rates they are paying (10.0% and 5.42%) are within the usual used car interest rate range according to Experian as reported by MarketWatch (11.38%).
Finally, the credit card with a $5,500 balance accrues interest at a rate of 18%. This rate is within the range for the average credit card APR, which is ranges from 16.22% - 23.94% (up from 15.24% – 23.99% Q1, 2022) as reported by ElitePersonalFinance (as of March 2024).
One other optional detail: both Ron and Amanda started their careers at jobs that paid the average wage for 2022 college graduates, $60,028, according from Forbes magazine quoting the (NACE) Salary Survey for the Class of 2022.
The total debt of just under $110,000 should not present a problem for our young couple with this income. In fact, it is well below the U.Ss national average as both an absolute number, approximately $308,000 according to Experian and the New York Federal Reserve Bank as reported by Business Insider as of Q4 2023 and when expressed as a debt to income ratio according to Statista, also as reported for 2022. Thus, their debt-to-income ratio is under 100%. (More on this later.)
Fortunately, Ron and Amanda should not be stressed out over their debt load.
If that's the case, why should they care about debt management?
In one word, "interest."
What is the cost of debt?
Everything we buy has a cost, and when we take out a loan, we are buying the use of the money for usually a set period (known as the loan's term). Therefore, when we borrow money, we should think of the transaction just like we think about any other purchase we make.
So, what is the cost of that purchase?
The cost is the interest charged.
All things being equal, none of us would usually want to pay more than we have to pay for anything we buy. Purchasing a loan should be no exception.
But here's the great thing. The cost of a loan, perhaps unlike any other purchase, can be lowered even after you've received the amount borrowed and have signed all the paperwork.
And lowering the cost does not require the approval of the seller, i.e., the lender!
Try lowering the cost of a car after you've bought it!
Further, if you can lower your ongoing borrowing costs, you'll frequently save more than just money - you'll very likely also save time. That is, it won't take as long to pay back the loans as it would when the costs are higher.
Saving time means you'll be able to invest your loan payments sooner (thus giving your investments more time to grow).
How do I lower my debt costs even after the loan papers are signed?
At a high level, you'll need to take four steps to lower your loan costs.
- Understand your current debt situation fully.
- Review the different debt reduction strategies.
- Decide on a plan to follow.
- Follow the plan.
Fortunately, this debt reduction calculator will make three of the four steps relatively easy. Unfortunately, it can only go a little way in helping to make the fourth step easier. You'll still be responsible for making the payments on the revised plan!
What the calculator can do, however, is create for you a single payment schedule showing all the debts with the payments paid on their respective due dates.
I don't believe there is any other calculator on the net that will do that for you.
Ready to get to the meat?
Let's take a look at what Amanda and Ron's loans will currently cost them.
1. Understanding Your Debt Situation
Before Ron and Amanda can start using the calculator, they need to gather information about all their current loans. To do this, they work from the most recent statements provided by each lender. (Of course, you'll need to do the same.)
Note, for this exercise; it is never necessary to know the original loan amount. This task is all about understanding the present, not the past.
As you can see from the initial entries in the calculator, Ron and Amanda have entered their current debt details on the tab page labeled "Debts."
Please note a few details about the list of debts....
For most loans, the "Minimum Payment Due" and the "Current Payment" will be the same amount. That is typical for student loans, car loans, and mortgages. It's ok not to enter minimum payment amounts. They aren't required. Nonetheless, you may want to do so for reasons we'll discuss later.
Like "Minimum Payment Due," "Minimum Payment Percentage" is not required either. In fact, most loans won't have a "Minimum Payment Percent." The borrower will be expected to pay a specific amount due.
The primary exception, of course, is credit cards. Credit card issuers state a "Minimum Payment Percentage" because credit card balances can, and often do, fluctuate considerably, and therefore, it's not practical to declare an absolute minimum amount.
For other details about the debt list, scroll down and see Pointers on using the ADRC.
With the debts entered, Ron and Amanda can see their complete debt picture - all in one place - on the "Current Payback" tab.
The "Print Preview" provides a summary of the details in the report's header. Their total outstanding debt is $108,250, and they are making payments that currently total $1,757 a month.
Following their current payment plan, they will have their debts paid off after 9 years and 2 months (or 110 months).
They will pay a total of $134,855 in principal of which $26,605 will be cumulative interest on all the loans.
Let's see what they can do to lower their loan costs.
That is, can they make their debt purchase cheaper, even though the paperwork is signed and they have received the loan proceeds?
Of course, they can. And you can too!
To learn how much Ron and Amanda can save, we'll take a look at multiple debt reduction strategies.
2. Reviewing Debt Elimination Strategies
By using the debt payoff calculator, you'll gain a comprehensive understanding of loan payback options. Even if you decide not to make changes to your current payback plan, the knowledge may come to benefit you the next time you need to borrow money.
There are four distinct methods we will present for lowering borrowing costs.
- Extra principal payments
- Loan Consolidation
- Rollover reduction techniques, including
- Debt Snowball.
- Debt Avalanche.
- Shortest to longest term.
- Freelance Method.
- Meet a Goal
In addition, you can review two more methods:
- Rollover with extra payments
- Loan consolidation with extra payments
Making extra principal payments perhaps is the most commonly known way to save on interest charges so we'll discuss it first.
A. Making Extra Principal Payments
What are additional payments, and why does making them save the borrower money?
Let's look at Ron's auto loan with a balance of just over $12,000 at an annual interest rate of 10%. If Ron decided to pay an additional $100 the $100 is used to reduce the principal balance.
This means the next interest calculation is on a lower balance than it otherwise would have been had the additional $100 not been paid. Thus the interest portion of the payment is less and more is applied toward principal, which lowers the balance even more.
Yes, it is true that the amount of interest saved is very tiny at first (in this case, less than $1). But by making even one extra payment, the interest owed is reduced for every future payment.
On the other hand, if the borrower keeps making the extra payments, the interest savings continues to increase as the principal gets paid down faster.
The debt elimination calculator supports three ways of making extra payments.
On the "Extra Payment" tab under "Debt Reduction Methods," you can enter an additional payment amount that is applied every month. Or you can plan on paying extra amounts in particular months for varying values if you wish.
When you use the options on the "Extra Payment" tab, the extra payments get applied to the debts in "Priority" order as set in the debt list.
The third way to incorporate an extra payment into the debt reduction plan is to increase the "Current Payment" amount. That gives you complete flexibility to apply the extra payment to whatever debt you wish. And it is also a way to apply an extra payment to just one loan - that is, the extra payment does not roll over to another loan when the selected loan for the extra payment is paid off.
The disadvantage of incorporating the extra payment into the results is that you'll need to run the calculation first without the additional amount and then again with it. Then you'll need to calculate the interest saved by hand by noting the difference in the total payment on the "Current Payback" tab.
B. Loan Consolidation
Loan consolidation can potentially offer borrowers a large savings.
Loan consolidation is when the borrower takes out a new loan to pay off an existing debt or debts that have a higher interest rate.
The debt elimination calculator supports three consolidation options:
- The new loan is for the full amount of all the debts. You should only select this option IF the consolidation loan's interest rate is lower than all the interest rates for all the debts.
- The new loan is for the full amount of all the debts with an interest rate equal to or higher than the consolidation loan. This is normally the best option.
- The new loan is for a random amount not equal to any specific debts or sum of debts. The calculator pays off the highest interest rate loan first and continues until the consolidation loan is fully applied to the debts.
For maximum savings, you must continue to pay the same monthly payment you had been paying even though the new lower interest rate loan does not require you to do so.
If your consolidation loan replaces two loans, sum their payments and enter them into the "New Payment Amount" input.
Where can a borrower get a consolidation loan?
There are two conventional sources:
First, if you have equity in a home, one source of funds for loan consolidation with usually a low-interest rate might be a home equity loan. If you consider this option, please understand the risks as it beyond the scope of this post to discuss them here.
A second source is to shop for a credit card with a lower interest rate. Or better yet, check the credit card you already have. Perhaps one has a lower interest rate. If so, you can transfer loan balances to the more economical rate card.
Loan consolidation can save interest charges. However, it does require some work on the borrower's part. First, you have to shop for a new loan, and then you have to apply for the loan which may require filling in a loan application and waiting for loan approval.
Nonetheless, the savings can be substantial and well worth the effort.
Let's look at an interest reduction method that requires absolutely no work by the borrower.
C. Rollover Payment Methods
Rollover payment methods are unquestionably my favorite way to efficiently pay off debt and to save money.
These are the methods that require no change in a borrower's current behavior, assuming that the borrower pays their loans on time and in full.
The rollover principle is simple. You pay your debts each month as they come due. But, after a loan is paid off, rather than paying less in loan payments the next month, you keep paying the total amount you had been paying. That is, you add the paid off loan's payment amount to another debt's payment.
There are several ways to do this:
Debt Snowball Method has been popularized by Dave Ramsey. You can read the details here. However, to summarize, the method dictates that the borrower pays the maximum amount they can afford to pay on the lowest balance debt. Then they pay the minimum payment they are allowed to pay on all the other debts.
The lowest balance debt is paid off first, giving the borrower a sense of accomplishment, and the payment is rolled over to the next higher balance. The process repeats until all balances are paid off.
The debt snowball rollover and the resulting savings are automatically calculated for you using the current payment amounts you've entered in the debt list. If you are making payments higher than the minimum amount for any loan aside from the loan with the shortest term, you should adjust the current payment. Make it equal to the minimum payment and add the extra you had been paying to the shortest term loan.
That is if you want to follow the snowball method to a tee.
The choice is yours.
Debt Avalanche Method is like all rollover techniques - the borrower pays the same total loan payment month-to-month.
With this debt payoff method, the borrower pays the maximum affordable payment to the debt with the highest interest rate and the minimum amount to all other debts. If there are loans with shorter terms and lower rates, as they are paid off, their payments will rollover to the loan with the highest interest rate.
Again, the calculator makes the rollover calculation automatically. You can see all the details with exact payment dates and amounts on the "Debt Reduction Results" tab.
Shortest term to longest requires that the maximum amount available be paid to the loan with the fewest number of remaining payments and the minimum payment amount to the other debts.
Freelance method this is where you are in complete control. The calculator rolls the payments over in the priority order that you have set in the debt list.
If you want to get rid of a loan with a small balance first and then pay the most to the loan with the highest interest rate, just set the priority in that order.
The loan with priority one is the highest priority, followed by two, three, etc.
D. Meet a goal method
You are entirely in the driver's seat with the "Meet a Goal" method.
Look at your current payment schedule and see when the last payment is due. Then pick a date that you want to be debt-free that is earlier than the final payment date.
The calculator will recalculate all the payments to have all loans paid off by your goal date. When your goal date is earlier than the anticipated payoff date, you'll not be borrowing the money for the length of time initially expected. Thus you'll save interest charges.
Now you should understand the different debt reduction techniques available to you. So let's look at Ron and Amanda's current debt and see just how much they can save and which debt payoff method they should follow.
3. Deciding on which strategy to follow.
Ron and Amanda have itemized their debts and reviewed their current payback plan. They have learned that their total debt is just over $108,000 and that they will pay $28,036 in interest charges until the loans are paid off in 2033.
Amanda and Ron are intrigued by the various rollover methods.
They decide to compare their current payoff plan to the Debt Snowball method and the Debt Avalanche method.
Notice, however, they are paying extra on both their student loans and their credit card balance (the payments are above the minimum). They had heard that making additional payments on a loan is a good practice and that it will save them interest.
When including these extra payments, all loans will be paid off in 110 months, and the total interest comes to $26,605 (see "Analysis" tab or "Current Payback" tab).
Optimize all extra amounts going to one loan either lowest balance or highest rate
Now that they know the facts, it is time to decide on a plan and to follow it.
4. Following the new plan
The debt avalanche saves our borrowers the most money, so that's the plan they decide to follow.
Ron and Amanda are highly motivated to adopt this new payment plan. Ron uses the calculator to print their personalized debt reduction schedule to help keep them on track. The payment schedule also gives them a way of checking that the lenders are correctly allocating the payments between interest and principal.
This calculator just may be the only one on the internet that is capable of creating (and allowing users to print) a single schedule, with exact due dates, for multiple loans.
Pointers on using the ADRC
- Loans DO NOT have to be entered in the debt list in priority order.
- Pay attention to the checkboxes on the "Debt Reduction Methods" tabs! Make sure the method you want active is active.
- Use the [Next] and [Previous] to move through the steps. Using the buttons rather than the tabs assures that calculations are completed in the correct order.
- Don't use the [Delete Row] button to delete a debt if you want to do a new analysis less one debt. Rather, set the priority to "0". The calculator ignores all debts with a "0" priority.
- The extra payments are applied in the debt's priority order. If you entered your debts and numbered them from 1 to 5 (1 is the highest priority and five the lowest priority, and you want to change the order so that four is ahead of 2, renumber debt 4 to 1.5. And a gap between 3 and 5 is ok.
- Like almost all calculators on this site, this calculator is date sensitive. It is possible to do a calculation one day and get one result and then do a calculation with the same debt details on another day and get a different result. That is NOT a bug. I suggest you print your "Debt Result Schedule" from the print preview to save for reference.
- If you see a relatively small difference in interest calculations from what the lender calculates, try a different compounding frequency. Otherwise, leave it set to "Monthly."
- Not that it's likely to make a huge difference, the balance you enter should be the balance immediately after the last payment. Or it should be the balance as of the date one month before the next payment due date. The first payment for any debt will always follow "today."
- Make sure to include only the portion of the payment amount going toward the loan. If, for example, one debt is a mortgage, do not include the amount that may be going toward insurance or property taxes (escrow).
Wrapping it up
As I mentioned from the outset, anyone with multiple debts can potentially benefit from studying and selecting one of the above debt reduction strategies.
After all, what consumer does not want to save money?
However, if you believe that you have excessive debts or are otherwise in financial trouble, please consider contacting the National Foundation for Credit Counseling. Ask about speaking with an NFCC certified credit counselor. NFCC is a nonprofit organization.
Sometimes, borrowers required help beyond what the Accurate Debt Reduction Calculator and I can offer.