Debt Payoff Calculator
Debt is an unfortunate fact of modern life. Credit is easy to come by and for the majority of Americans it’s an essential component of owning a home, a car, or paying for college. It’s a cycle you may never escape from, but with help from a debt payoff calculator you can get a clearer picture of how long your current debt will last.
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Program your details into a debt payoff calculator to learn how long it will take you to clear your debts and keep reading to learn more about using this calculator and clearing your debts.
How Long Will It Take to Payoff my Debts?
A debt payoff calculator takes several key pieces of data, runs a quick calculation, and tells you how long a particular debt will take to clear. Different debts charge different rates and there are also fees and penalties, missed payments, delinquencies, and other outcomes to consider. Therefore, a debt payoff calculator should be used as a guide only and is not there to provide you with a watertight prediction.
The higher the minimum payment and the lower the interest rate, the quicker your debts will be repaid. Interest is a major defining factor here, even if your repayments are quite high. For example, a $10,000 credit card balance with a 24% annual percentage rate (APR) will generate close to $1,300 worth of interest and take 12 months to repay, even when the consumer is repaying $1000 every month.
That’s 10% of the balance, a minimum payment that is simply out of the question for the majority of consumers. If we drop that minimum payment to a more realistic $300, the debt will take more than 4 and a half years to clear and generate over $6,600 in interest.
Why Does it Take so Long to Pay-off my Debts?
A large portion of your monthly repayment goes towards the interest, which essentially means you’re paying for the pleasure of having debt. If you have a credit card balance of $5,000 with a 20% APR and a $100 monthly repayment, then around $80 to $85 of that goes towards the interest. The rest chips away at the principal and when this clears then your debt has been repaid.
The more repayments you make, the more principal you will pay. Generally, the first few repayments pay more towards the interest than the principal, while the last few months do the reverse. Over the course of a loan you could be paying more interest than the entire value of the loan.
Can I Payoff my Debts Quicker?
Debt payoff calculators are based on your current monthly repayment, but if you increase this then you can greatly reduce the length of time it takes to repay your debts. As mentioned above, your minimum repayments, especially in the early months, are made of a majority of interest and a minority of principal.
Once that repayment has been made, then your interest for the month has been covered and any additional funds will go towards your principle. This is true for credit cards as well as mortgages and other types of personal loans. If you want to repay your debts sooner, simply increase the minimum repayment amount.
Not only will this eat away at the principal and reduce the number of repayments that you make over the lifetime of the loan, but it will also reduce compound interest, thus saving you significant amounts of money.
APR and Debt Payoff
APR is very important, yet it’s something that many consumers overlook. Everyone who has ever shopped for credit cards knows that 15% is significantly better than 24% and will almost always opt for the former, but very few consumers will worry about 1 or 2 percentage points and won’t see much difference between a card with 24% APR and a card with 22% APR.
The promise of a few extra loyalty points is usually all it takes to sway them towards the higher figure.
However, over the long-term it can make a huge difference. If we return to an example used above, which was a debt of $10,000 with a monthly repayment of $300, then that seemingly insignificant 2% can reduce/increase your total repayment time by four months and your total interest repayments by over $1,000!
Always pay close attention to the APR when applying for credit cards and loans and always opt for the lowest APR you can get.
Things that Could Prolong Your Debts
All of the following can increase the time it takes to clear your debts, extending the figure given to you by our debt payoff calculator:
- Missed payments
- Additional debts
- Fees and penalties
- Debt management and repayment plans
- Delinquencies and bankruptcies
- A change in the terms and requirements
Can Debt Relief Help?
Debt relief companies are designed to make your debts more manageable and affordable, not to help you clear them quicker. Debt settlement, for instance, can help debtors who have delinquent debts to settle for a smaller sum. It’s an effective way to clear debts for less, but there is no guarantee that creditors will settle, and the process can take several years to complete.
Debt management involves the creation of installment plans, focusing on affordability and potentially prolonging the time that it takes to clear your debts.
There is one exception and that’s debt consolidation. A consolidation loan can clear all of your current debts and allow you to focus on repaying one smaller debt with a more manageable repayment structure and APR. It could save you money and it could also reduce the time it takes to clear your debts, while also limiting the risk of penalties, risks, and missed payments.
Average Length of a Debt in the US
More than 80% of Millennials are in debt and if current statistics are anything to go by, three-quarters of them will die with debt. That’s a pretty scary statistic, especially when you consider that things don’t look much better for Baby Boomers and other older generations.
For many, therefore, debt lasts a lifetime. But that includes mortgages and equity loans, and well as unpaid credit card balances, so it’s not all doom and gloom.
Student loans are some of the most damaging and take an average of 20 years to clear. The average credit card is repaid in a little over a year, however, while auto loans last 69 months on average.