Debt Payoff Calculator
The calculator below estimates the amount of time required to pay back one or more debts. Additionally, it gives users the most cost-efficient payoff sequence, with the option of adding extra payments. This calculator utilizes the debt avalanche method, considered the most cost-efficient payoff strategy from a financial perspective.
Debt Payoff Calculator
Loans and debts are basic economic activities in modern society. Companies, individuals, and even governments assume debts to maintain operations. Most people will take on some loans during their lifetime, be it mortgage loans, student loans, auto loans, credit card debt, or other obligations.
If used responsibly, debts can help people own homes, purchase cars, and keep their life rolling. However, debt can also lead to high levels of stress. This can cause severe mental, physical, and medical problems over time. Also, excessive debts, especially credit card debt, can encourage people to overspend, costing them significant amounts of money in interest expenses. It may also interfere with financial planning, reduce credit scores, and eventually damage personal lives.
Pay off Debts Early
Most people like the feeling of being debt-free and, when possible, will pay off debts earlier. One common way to pay off loans more quickly is to make extra payments on top of the required minimum monthly payments.
Borrowers can make one-time extra payments or pay additional amounts every month or year. Those extra payments will lower the principal amounts owed. They also move the payoff date forward and reduce the amount of interest paid over the life of the loan.
The Debt Payoff Calculator above can accommodate a one-time extra payment or multiple periodic extra payments either separately or combined.
Before deciding to pay off a debt early, borrowers should find out if the loan requires an early payoff penalty and evaluate whether paying off that debt faster is a wise decision financially.
While making extra payments towards a loan can help, it is unnecessary in most cases, and the opportunity costs deserve consideration. For instance, an emergency fund can bring peace of mind when incidents like medical emergencies or car accidents occur. Moreover, stocks that perform well during good years can offer a greater financial benefit than extra payments towards a low-interest debt.
Conventional wisdom has it that borrowers should pay off high-interest debts such as credit card balances as early as possible. They should then evaluate their financial situations to decide whether it makes sense to make extra payments on low-interest debts such as a home mortgage.