How our calculator works

To use this calculator, you’ll need to gather the most recent statements for the debts you want to pay down and find the following:

• Interest rate.
• Current amount owed.
• Minimum monthly payment.

Next, enter this information for each of the debts you want to include in your debt pay-down schedule, along with its type — credit card, retailer charge card, auto or boat loan, home equity loan or another kind — up to a maximum of 10. You’ll also need to enter your current tax bracket, as well as any additional income you’re expecting to receive for the remainder of the year.

Using this information, our calculator will create a customized payment plan, which will tell you which debts to prioritize, where additional payments should be made and for how much, as well as your debt paydown schedule. 

How to calculate interest 

Interest can be calculated in different ways. Interest rates may be fixed, meaning they stay the same over the life of your credit, or variable, meaning they can change and fluctuate with the prime rate.

Simple interest: Simple interest is calculated by multiplying the loan’s principal by its interest rate by its term. For example, a $10,000 loan paid back over ten years at 5 percent interest would be 10000 x 10 x .05 = $5,000 ($5,000 would be the total interest charged to you in this scenario). You can use the Bankrate simple loan calculator to do the math. 

Amortized interest: Amortized interest may sound familiar, as it is the structure for many mortgage loans. Amortized loans frontload your debt with interest-heavy payments, meaning that in the beginning, your principal balance will not change much from one payment to the next. As you make payments over time, however, your payments will go more and more toward principal and less toward interest. In our example using a $10,000 loan repaid over 10 years, payments would be the same — about $106 per month — but the total interest paid would be less: $2,728 over the life of the loan. To calculate your amortization schedule and how much you would pay in interest, you may use the Bankrate amortization schedule calculator.

Compound interest: Compound interest is calculated anew every month, quarter or year of your loan. Credit cards often use compound interest, which can increase your debt burden quickly, because future interest is calculated based on your original balance, plus any accrued interest to date. On the flip side, savings accounts often use compound interest to your advantage, earning interest on your original balance plus any interest that has accrued so far. To calculate compound interest, you can use the Bankrate compound interest calculator.

It is important to note that with simple and amortized interest, your payments will remain the same over the life of your loan. Though payments are applied to your interest and principal differently with each, you can expect your regular payments to stay the same over time. By comparison, if you carry an ongoing balance with compound interest, your payments could grow over time.

Techniques to pay down debt

Consider the following strategies to pay down debt faster, while saving money in interest.

What’s next?

If your goal is to reduce debt, take inventory of your financial obligations, as well as your assets and monthly gross income. This will allow you to see where there’s room for improvement and help you determine which paydown strategy is the best for you.