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# Debt Payoff Calculator

The Debt Consolidation Calculator can determine whether it is financially rewarding to consolidate debts by comparing the APR (Annual Percentage Rate) of the combined debts with the real APR of the consolidation loan. Real APR is the fee-adjusted APR, which is a more accurate determinant of the financial cost of a loan. Calculated results will also display comparisons such as monthly payment, payoff length, and total interest.

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Extra Payments:
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Fixed total amount towards monthly payment?

If “Yes” is chosen, after a debt has been paid off, the money that was being paid to that specific debt will be distributed towards paying off remaining debts; the total amount initially allotted to monthly payments will be fixed until all debts are paid off. If “No” is chosen, after a debt is paid off, the monthly payment for that particular debt will not be distributed towards paying off remaining debts. In this case, the total amount allotted to monthly payments decreases as debts are paid off.
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RelatedDebt Consolidation Calculator | Payment Calculator

### Debt Avalanche

This method of repaying multiple debts results in the lowest total interest cost by prioritizing the repayment of debts with the highest interest rates, while paying the minimum amounts for each other debt. This continues like an avalanche, where the highest interest rate debt tumbles down to the next highest interest rate debt, until every debt is finally paid off and the avalanche is over. For instance, a credit card with an 18% interest rate will receive priority over a 5% mortgage or 12% personal loan, regardless of the balance due for each. This method pays off debts with the least total interest. The calculator uses this method, and in the results, debts will be ordered from top to bottom starting with the highest interest rates first.

### Debt Snowball

In contrast, this method of debt repayment starts with the smallest debt first, regardless of interest rate. As the smaller debts are paid off, payments are directed toward larger debt amounts. The debt snowball method can help those who value debt elimination as a sense of progress over lower total interest payments given constant payments. Although this method often results in a larger total interest paid than the debt avalanche method, eliminating any debt (even if small) can provide a significant emotional stimulus that may allow a person in debt to remain motivated or even make some sacrifices to contribute more towards paying off their debt. The calculator does not use this method.

### Debt Consolidation

Debt consolidation involves taking out a single, bigger loan, usually as a home equity loan, personal loan, or balance-transfer credit card, this new loan (usually with a lower interest rate) is used to pay off all existing smaller debts. Debt consolidation is mainly useful for paying off higher interest debts, such as credit cards balance. In many situations, this can lower the monthly repayment amount making it is less stressful to payback. Also, having one sole monthly payment instead of several can be less complicated. However, it may increase the loan term, which may result in a larger overall payment on interest. For more information or to do calculations involving debt consolidation, use the Debt Consolidation Calculator.

### Alternative Methods of Managing Mounting Debt

In the United States, individual borrowers that struggle to repay debts can seek external help. Whether it’s because they financially don’t have the means to, do not have the right mentality, or their credit score is too low, there are alternative methods that can possibly salvage their situations. It is important to carefully weigh these options and assess in detail whether they should be used or not, as they may potentially leave borrowers worse off than before. These options generally cost more money, can potentially affect credit scores in negative ways, and may result in more debt later down the road. Some personal financial advisors suggest avoiding these methods in any situations.

Debt Management

Debt management first involves consulting with a credit counselor from a credit counseling agency. The U.S. Department of Justice contains a list of approved credit counseling agencies by state. Credit counselors review each debtor’s financial situation and usually contacts and negotiates with creditors to potentially reduce interest rates or monthly payments for their clients. If they deem a debt management plan viable, the credit counselor will extend an offer to the debtor to take responsibility for all their debts every month and pay each of the creditors individually. In turn, the debtor is required to make one monthly payment to the credit counseling agency (as opposed to several to each creditor) and possibly other fees. Usually, credit counselors will require debtors to avoid opening new lines of credit and close their credit cards to avoid accruing new debt.

Debt management can offer relief from constant calls, emails, and mail from creditors. Debt management is most useful for people who are disciplined enough to slowly reduce debt over the long term, and repayment plans. Although debt management may initially negatively affect credit scores, there is much less of an effect than debt settlement or bankruptcy.

Debt Settlement

Debt settlement involves negotiating with creditors to settle existing debt for less than the amount owed, usually 45% to 50% without including a debt settlement fee that is usually around 20% of the debt amount. Debt settlement normally has a major negative impact on credit scores and reports. Forgiven debts are treated as income and will require the payment of income taxes by the IRS.

Bankruptcy

Bankruptcy is the legal status of a person or entity that cannot repay debts to creditors. While there are six types of bankruptcies, generally, only two of them are used by individual consumers. The first is Chapter 7 bankruptcy, which is the most common. The main purpose of a Chapter 7 bankruptcy is to discharge debt, which relieves the filer of legal obligation to pay it back. However, there are certain debts that are immune from discharge. Chapter 7 usually takes half a year to a year. The second is Chapter 13, which can be akin to reorganization, as it puts the filer on a payment plan that can last anywhere between three to five years. Once this plan is complete, any remaining debt is discharged. Compared to Chapter 7, Chapter 13 bankruptcy often allows the retention of valuable assets rather than having the Court sell them. What type of bankruptcy to file for is usually dependent on assets and income. However, filing for bankruptcy will result in a significant negative mark on credit reports for up to a decade, making it very hard to apply for loans, mortgages, or new credit cards. Landlords and future employers generally view bankruptcy as unfavorable, and it has an effect on future renting or job application.