Credit cards are great to own as they help you build your credit score and take advantage of different rewards and incentives. But as convenient as it may be to use these cards, they also come with a huge responsibility. You need to keep track of your expenses and pay off your debt on time—or you risk seeing your debt snowball.
With that, it’s essential to have a good debt management and payment strategy. If you’re having difficulty handling your credit card payments, a good first step will be to use a debt payoff calculator. This tool gives you a transparent view of your debt so that you can manage your payments more effectively. Get to know more about how it works below.
What is a Debt Payoff Calculator?
A debt payoff calculator, sometimes called a debt repayment calculator, is a handy tool that helps you determine how long it’ll take to pay off your debt. To use the calculator, you’ll need to fill in three main components:
- Credit Card Balance – Total outstanding balance on your credit card
- Credit Card Interest Rate – Annual percentage rate (APR) of your credit card
- Minimum Payment – Minimum amount you need to pay per month to avoid penalties and fees
One convenient feature of the calculator is that you can input different parameters per card to estimate the debt payoff period even with multiple credit cards. Additionally, if you check out Prudent Financial Solutions’ debt payoff calculator, you’ll also notice a “use credit card minimum payments” box.
Ticking this box will automatically set your minimum payment as 4% of your current balance. While card companies may have different ways of calculating this, many use a fixed percentage of your balance, so you can use the 4% as an estimate.
How the Debt Payoff Calculator Can Help You Get Out of Debt Faster
Through the debt payoff calculator, you’ll get a comprehensive report on how long it’ll take to pay off debts. But the unique thing about it is it shows you the amount of time until your debt is paid in three case scenarios: current, consolidated, and accelerated.
- Current. Current considers your current payment plan—that is, how much you pay for your card monthly.
- Consolidated. Consolidated refers to how long it’ll take to pay off your debt if you opt for debt consolidation, which means combining your credit card debts into a single loan, such as a personal loan. A consolidation is generally a good option if you have many cards and can find a loan that offers a lower interest rate than your cards.
- Accelerated. Accelerated shows the payoff time using the debt avalanche method. This method involves making the minimum payment on each card, then allocating any extra funds to cards with the highest interest rate.
More notably, the calculator also tells you how much you can save in total interest. So with all the information provided, you can ultimately find the best arrangement to repay your debts more quickly. Whether this involves increasing your monthly payments or consolidating your debts, the calculator can show you the fastest way to become debt-free.
How to Use the Debt Payoff Calculator to Create a Customized Plan
It can be overwhelming to keep track of your credit card debt on top of everything else, especially if you have multiple cards with different balances and interest rates. So if you find yourself stuck in a cycle of debt, a payoff calculator can be a great tool to help you save interest and pay your debt more quickly.
Using a debt payoff calculator, you can create a custom payment plan based on your financial situation and needs. Instead of making minimum monthly payments as you usually do, you can proactively see how long it’ll take you to finish paying your debt.
Paying more per month is an easy way to repay your loan faster, so the calculator helps you find the optimal amount. If you’re interested in creating a custom plan, start by filling out your card’s balance and interest rate. You can then experiment on the minimum payment field to see how the payoff period changes based on your monthly payment.
Alternatively, you can check if debt consolidation will help you pay off your loan more quickly. Before you pay off debts early, check the loan terms to ensure you can save a more significant amount in the long run.
Benefits of Using a Debt Payoff Calculator
Debt payoff calculators encourage you to manage your debts responsibly to avoid falling into a mountain of bills you can’t pay. Specifically, they offer vital benefits like:
- Planning Payments Proactively. Estimating the payoff period for your debts allows you to plan your payments proactively. Instead of sticking to your habit of paying whatever you can afford monthly, you can think long-term and figure out the best way to repay your debt early on.
- Speeding Up Debt Repayment. A debt payoff calculator can get you out of debt faster. It tells you how long it’ll take to repay your debt with your current plan. You can then adjust your monthly payment or get a debt consolidation plan, choosing whatever arrangement is faster and more cost-saving!
- Building Healthy Financial Habits. Finally, using the calculator helps you build healthy financial habits. It teaches you to be more conscious of your credit card debt since you’ll keep better track of your balance and avoid letting it accumulate uncontrollably.
FAQs about Debt Payoff Calculators
How is a debt payoff calculator used?
As its name suggests, a debt payoff calculator estimates the payoff period for your debts and helps you create a custom payment plan. You can include different debts in the calculator, such as credit card debt, auto loans, student loans, and home equity loans.
How does a debt payoff calculator work?
A debt payoff calculator calculates how long it takes to repay your debts based on your balances, interest rates, and monthly payments. It also shows you alternative payment plans using debt consolidation or the debt avalanche method to shorten the payoff time and lower your interest expenses.
Don’t Sacrifice Your Retirement for Debt and Get Help from Prudent Financial Solutions
Credit cards can be a fantastic tool in your arsenal—provided that you use them responsibly. However, if you are stuck in debt, not all hope is lost. Prudent Financial Solutions has a valuable debt payoff calculator to help you customize a payment plan to save on interest and get out of debt more quickly.
Beyond this, we provide tailored financial solutions to help you stay debt-free and take charge of your finances. Call us today at 1 877-740-0012 to apply for a free financial analysis.