Accurate Debt Reduction Calculator™

Getting Out of Debt—An Introduction

This page does not provide a lecture about the dangers of excessive debt.

I designed the Accurate Debt Reduction Calculator (ADRC) so that anyone who has multiple loans can determine whether changing a repayment plan could reduce borrowing costs.

How long will it take to pay off debts? Easily test debt reduction strategies. Find the best payoff plan for you.

• Debt Snowball.
• Debt Avalanche.
• Shortest to longest term.
• Freelance Method.

You can save potentially thousands in interest charges.

Click to Try It Now!

If you want detailed commentary about the problems that can result from excessive borrowing, you can find many articles with a quick web search. For example, see this CNBC article about personal debt or this article from Nav about business borrowing.

Instead of a lecture, this page explains strategies for accelerating repayment to reduce interest charges. Two plans commonly called the Debt Snowball and the Debt Avalanche may reduce your total interest cost. These strategies may work without increasing your total monthly payment.

You may be able to save thousands of dollars.

In some situations, you may save thousands of dollars without changing your current monthly payment—now or later.

The results are based on your data.

The multiple debt calculator creates a single payment schedule that provides a personalized, step-by-step plan to reduce and then eliminate your debt.

Also, you do not need to be in financial difficulty to benefit from this information. If you have multiple loans, using this calculator is a prudent way to evaluate repayment options. By reviewing the loan payment schedule, you will see how different strategies can affect your finances.

More below…

Getting Started

This webpage preloads the calculator with sample data so that you can test it quickly and review the options. Review the information below before you enter your own loans.

If you prefer to start by experimenting, you may skip ahead to Pointers on using the ADRC.

If you want to make sure you do not miss any features of this debt payoff calculator, continue reading.

(If you have already started entering information and now want to follow along, click your browser’s refresh button to reload the page.)

Most people in Western economies borrow money at some point. This is not inherently good or bad. According to Federal Reserve data cited by WalletHub, as of 2023, 77% of Americans carry some form of debt, including mortgages, car loans, unpaid credit card balances, medical and legal bills, student loans, or a combination of these.

The key is to manage loans carefully and reduce borrowing costs whenever possible.

How can you do this?

Consider a typical couple: Ron and Amanda. They are recent college graduates. They have student loans, two car payments, and one credit card balance from relocation expenses and basic household purchases.

Our example couple carries student loan debt equal to the average debt for a Class of 2023 graduate: $37,650. For this illustration, assume an interest rate of 4.45% on these loans.

Amanda and Ron need cars for work and have borrowed slightly less than $30,000 to purchase two used vehicles. These interest rates (10.0% and 5.42%) fall within typical used-car ranges reported by Experian and cited by MarketWatch (11.38%).

Their credit card carries a $5,500 balance at 18%. This rate is within the average APR range, which runs from 16.22%–23.94% as of March 2024.

Both started their careers at the average wage for 2022 college graduates: $60,028, according to Forbes citing the NACE Salary Survey.

Total debt of just under $110,000 should be manageable at this income level. It is below the U.S. national average in both absolute terms — approximately $308,000 (Experian and the New York Federal Reserve, Q4 2023) — and on a debt-to-income ratio basis. Their ratio is under 100%.

Ron and Amanda should not feel overwhelmed by their debt burden.

If that is true, why should they care about debt management?

In one word, “interest.”

Everything we buy has a cost. When we take out a loan, we are buying the use of money for a defined period (the loan’s term). We should evaluate the loan the same way we evaluate any other purchase.

So, what is the cost of that purchase?

The cost is the interest charged.

All else equal, none of us wants to pay more than necessary for anything we buy. A loan is no exception.

Here is the advantage. The cost of a loan, unlike most purchases, can be reduced even after you receive the funds and sign the documents.

Reducing the cost does not require the lender’s approval.

You cannot lower the price of a car after the purchase.

When you reduce borrowing costs, you often save more than money. You also save time. Lower costs usually mean the loans are paid off sooner.

Saving time means you can invest the freed-up payments sooner, giving those investments more time to grow.

How Do I Lower My Debt Costs Even After the Loan Papers Are Signed?

At a high level, there are four steps to lowering loan costs:

1. Understand your current debt situation.
2. Review available debt reduction strategies.
3. Select a plan.
4. Follow the plan.

This debt reduction calculator makes three of the four steps straightforward. However, it cannot perform the fourth step. You are responsible for making the payments under the revised plan.

The calculator creates a single payment schedule that shows all debts and their respective due dates.

I am not aware of another calculator that provides this level of detail.

Ready to proceed?

Good.

Let us review what Amanda and Ron’s loans currently cost.

Before Ron and Amanda use the calculator, they gather information on all current loans. They rely on the most recent statements from each lender. (You will follow the same process.)

For this exercise, the original loan amounts are not required. This task focuses on the present, not the past.

As shown in the initial entries, Ron and Amanda recorded their current debt details on the tab labeled “Debts.”

Please note several details about the debt list.

For most loans, the “Minimum Payment Due” and the “Current Payment” are the same. This is common for student loans, car loans, and mortgages. Entering minimum payment amounts is optional.

Similarly, “Minimum Payment Percentage” is usually not required. Most loans specify an absolute payment amount.

The primary exception is credit cards. Issuers use a “Minimum Payment Percentage” because balances can change frequently, making a fixed minimum impractical.

For additional details, see Pointers on using the ADRC.

With all debts entered, Ron and Amanda can see their complete debt picture on the “Current Payback” tab.

The Print Preview summarizes the results. Their total outstanding debt is $108,250, and their current combined monthly payments are $1,757.

Under the current plan, all debts will be repaid in 9 years and 2 months (110 months).

They will pay $134,855 in total, of which $26,605 represents cumulative interest.

Next, we will see how they can lower their loan costs.

Can they reduce the effective price of their debt even after signing the agreements and receiving the funds?

Yes. And you can as well.

To determine potential savings, we will review several debt reduction strategies.

By using the debt payoff calculator, you will develop a clear understanding of repayment options. Even if you do not change your current plan, the insight may help the next time you borrow.

There are four primary methods for lowering borrowing costs.

1. Extra principal payments
2. Loan consolidation
3. Rollover reduction techniques, including
   • Debt Snowball
   • Debt Avalanche
   • Shortest to longest term
   • Freelance Method
4. Meet a goal

You can also review two additional methods:

5. Rollover with extra payments
6. Loan consolidation with extra payments

Making extra principal payments is the most familiar approach to saving interest, so we will consider it first.

A. Making Extra Principal Payments

What are additional payments, and why do they save money?

Consider Ron’s auto loan with a balance of slightly more than $12,000 at 10% annual interest. If Ron pays an additional $100, that $100 reduces the principal balance.

The next interest calculation is based on a lower balance than it would have been without the extra payment. The interest portion becomes smaller, and more of the payment applies to principal, lowering the balance further.

The interest saved is small at first (in this example, less than $1). However, one extra payment reduces interest for every remaining payment.

When the borrower continues making extra payments, the savings increase because the principal declines faster.

The debt elimination calculator supports three approaches to extra payments.

On the “Extra Payment” tab under “Debt Reduction Methods,” you can enter a recurring monthly extra amount, or you can schedule extra payments in specific months with different values.

When using the “Extra Payment” tab, extra payments are applied according to the debt “Priority” order set in the list.

The third way to include extra payments is to increase the “Current Payment” amount. This gives full control over which debt receives the additional amount. It also allows you to apply an extra payment to only one loan, without rolling it to another when that loan is paid off.

The disadvantage is that you must run the calculation twice—first without the extra payment and then with it—and manually compare the totals on the “Current Payback” tab to determine the interest saved.

B. Loan Consolidation

Loan consolidation can produce significant savings.

Consolidation occurs when the borrower takes a new loan to pay off one or more existing higher-rate debts.

The calculator supports three consolidation choices:

1. The new loan covers all debts. Select this only if the consolidation rate is lower than every current rate.
2. The new loan covers all debts with an interest rate equal to or higher than the consolidation loan. This is usually the most effective option.
3. The new loan covers a custom amount. The calculator applies it first to the highest-rate debt, then to the next highest, until the funds are fully used.

For maximum savings, continue paying the same total monthly amount even if the new loan requires less.

If one consolidation loan replaces two loans, add the two payments together and enter the sum in the “New Payment Amount” field.

Where can borrowers obtain a consolidation loan?

Two common sources include:

First, if you have home equity, a home equity loan may provide funds at a relatively low rate. Understand the risks carefully; a detailed discussion is beyond the scope of this page.

Second, you may qualify for a lower-rate credit card, or one of your existing cards may already offer a lower rate. You can transfer balances to the more economical card.

Consolidation can reduce interest costs, but it requires effort: identifying a loan, submitting an application, and waiting for approval.

However, the potential savings can make the process worthwhile.

Next, we will review a method that requires no additional effort from the borrower.

C. Rollover Payment Methods

Rollover payment methods are an efficient way to pay off debt and reduce borrowing costs.

These are methods that require no change in a borrower’s current behavior, assuming the borrower makes payments on time and in full.

The rollover principle is simple. You pay your debts each month as they come due. After a loan is paid off, you continue paying the same total amount you had been paying. You add the payment from the paid-off loan to another debt’s payment instead of reducing your total monthly outlay.

There are several ways to apply this principle:

Debt Snowball Method directs the borrower to pay the maximum affordable amount on the lowest-balance debt and to pay the minimum required amount on all other debts. You can read a detailed description here.

The lowest-balance debt is paid off first. This creates early progress, and the payment rolls to the next higher balance. The process continues until all balances are paid off.

The debt snowball rollover and the resulting savings are calculated automatically based on the current payment amounts you entered in the debt list. If you are paying more than the minimum on any loan other than the shortest-term loan, adjust the current payment to equal the minimum. Add the extra amount to the shortest-term loan.

Follow these adjustments only if you want to apply the snowball method exactly.

The choice is yours.

Debt Avalanche Method is similar to all rollover techniques—the total monthly amount remains constant.

With this method, the borrower pays the maximum affordable amount to the debt with the highest interest rate and the minimum amount to all other debts. When lower-rate loans with shorter terms are paid off, their payments roll to the loan with the highest interest rate.

The calculator performs these rollover calculations automatically. You can view the dates and amounts on the “Debt Reduction Results” tab.

Shortest term to longest requires directing the maximum available amount to the loan with the fewest remaining payments and paying the minimum amount on the other debts.

Freelance Method gives you full control. The calculator rolls payments according to the priority order you set in the debt list.

If you want to eliminate a small-balance loan first and then focus on the loan with the highest interest rate, set the priorities in that order.

The loan with priority 1 is the highest priority, followed by priority 2, priority 3, and so on.

D. Meet a Goal Method

You control the process with the “Meet a Goal” method.

Review your current payment schedule and note the last scheduled payment date. Then select an earlier date by which you want to be debt-free.

The calculator recalculates payments so that all loans are paid off by your goal date. When the goal date is earlier than the original payoff date, you borrow the funds for a shorter period, and you save interest charges.

At this point, you understand the debt reduction techniques available. Next, we will review Ron and Amanda’s current debt to see how much they can save and which payoff method may be most effective.

There are four primary methods for lowering borrowing costs.

Amanda and Ron are interested in the various rollover methods.

They decide to compare their current payoff plan to the Debt Snowball method and the Debt Avalanche method.

Notice that they are paying extra on both their student loans and their credit card balance (their payments exceed the minimums). They learned that making additional payments can reduce interest costs.

When these extra payments are included, all loans are paid off in 110 months, and total interest equals $26,605 (see the “Analysis” tab or the “Current Payback” tab).

Optimizing extra amounts means directing all additional dollars to a single loan—either the lowest balance or the highest interest rate.

Now that they understand the results, it is time to select a plan and follow it.

The Debt Avalanche method saves the most money for our borrowers, so they decide to follow that plan.

Ron and Amanda are motivated to adopt the new payment plan. Ron uses the calculator to print their personalized debt reduction schedule so they can stay on track. The schedule also helps them verify that lenders are allocating each payment correctly between interest and principal.

This calculator may be the only one on the internet that can create—and allow users to print—a single schedule with exact due dates for multiple loans.

• 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 selected.
• Use the [Next] and [Previous] buttons to move through the steps. Using the buttons instead of the tabs ensures calculations occur in the correct order.
• Do not use the [Delete Row] button to remove a debt if you want to run a new analysis that excludes one loan. Instead, set the priority to “0.” The calculator ignores all debts with a priority of “0.”
• The extra payments are applied according to each debt’s priority. If you numbered your debts from 1 to 5 (1 is the highest priority and 5 the lowest) and you want to place 4 ahead of 2, renumber debt 4 to 1.5. A gap between 3 and 5 is acceptable.
• This calculator is date sensitive. You may run a calculation one day and receive one result, then run the same data on another day and receive a different result. That is not a bug. Print your “Debt Result Schedule” from Print Preview for reference.
• If you see a small difference between the calculator’s interest total and the lender’s figure, try a different compounding frequency. Otherwise, leave it set to “Monthly.”
• The balance you enter should be the balance immediately after the last payment, or the balance as of one month before the next due date. The first payment for any debt always follows “today.”
• Include only the portion of the payment that goes toward the loan. For example, if one debt is a mortgage, do not include amounts that cover insurance or property taxes (escrow).

Anyone with multiple debts can benefit from reviewing and selecting one of the debt reduction strategies described above.

Most consumers want to reduce costs wherever possible.

However, if you believe your debt level is excessive or you are in financial difficulty, consider contacting the National Foundation for Credit Counseling. Ask to speak with an NFCC-certified credit counselor. NFCC is a nonprofit organization.

Sometimes, borrowers require assistance beyond what the Accurate Debt Reduction Calculator can provide.