Debt Avalanche Calculator – Forbes Advisor

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You’re ready to tackle your debt and you have a plan: pay off the balance with the highest interest rate first and when you’ve used up that balance, switch to the card with the highest interest rate. next high and do the same. Repeat until the debt is released!

This method of attacking the balance with the highest interest rate is called reducing your debt or the debt avalanche method and can be an effective strategy to keep you on track to pay off your balances. .

Forbes Advisor created this calculator to help you simulate various payment scenarios based on your budget, current balances, and interest rates on those balances.

Figure out which card you’re paying the highest interest rate on first and use our calculator to see when it’ll be paid off. Then apply those payments to the card with the next highest interest rate and so on.

Information/tooltips for the calculator:

Monthly payment amount
Tooltip: This amount is your minimum monthly payments plus the amount you can afford to pay above this amount each month. The higher this amount, the faster your debt will be paid off. Make sure the number is one you can comfortably afford because for the avalanche method to be effective, you need to be consistent in your payouts.

Minimum payment required
Tooltip: Your required minimum payment is typically between 2% and 4% of your total balance for this billing cycle, depending on your particular card agreement. If you check this box, we will calculate your refund using 4% of your outstanding balance. Although your actual amount may be slightly different, this is how credit card companies generally calculate minimum payments.)

* Note that Dinkytown calc displays the answer as a graph

Find the best balance transfer credit cards of 2022

Frequently Asked Questions (FAQ)

How can I lower the APR on my credit card?

There is no guaranteed way to get a lower interest rate on your credit card than what was issued to you when you opened your card account. But you can try contacting your credit card company directly and ask for a lower rate. Be sure to assess your credit history and your lender’s perspective beforehand. This may give you a better idea of ​​the types of offers your lender will present to you and better prepare you to negotiate a better rate yourself.

Another option is to consider transferring your balance to a card with a 0% APR promotional offer to save money on interest charges so that all your payments during the promotional period go towards paying off the principal.

Should I pay off the debt with the highest balance or highest APR first?

The two most popular debt repayment plans are the debt avalanche method and the debt snowball method. The debt avalanche method focuses on paying off the credit card balance with the highest interest rate first. The debt snowball method focuses on paying off the credit card with the lowest balance first, then the next card with the lowest balance, and so on.

Generally, the debt avalanche method is the most profitable since the card with the highest interest rate will cost you the most, but the debt snowball method can be an effective way to stay incentivized as you progress towards eliminating the debt on your cards. by a. Ultimately, the best strategy for paying off debt is the plan you can stick to.

Is it better to pay off my debt or save money?

Saving or paying off debt is a balancing act. Whether you should allocate more of your funds to paying down your debt or building up a savings reserve will depend on where you start. Experts generally recommend that if you don’t have an emergency fund, start there, then after setting aside at least three months of savings, move on to paying off your debt.

But everyone’s personal financial situation is different, and depending on your situation, it may be wise to focus on paying the overdue or overdue bills you owe immediately to avoid collections, foreclosures, or other default actions. .

What happens to my credit score if I pay off all my credit cards?

Paying off all your credit card bills is a worthy financial achievement. You won’t have to pay high interest on your balances, and since your overall credit utilization will be at an all-time low, it can improve your credit score. However, you cannot clear the history when clearing your debt. If you’ve made multiple late payments, skipped payments, or engaged in other less-than-stellar financial behavior, simply paying the bills in full won’t be enough to compensate.

Building a good credit score takes time. If you’re looking to increase yours, keep paying your balances in full and on time and you’ll see improvements. A word of warning: don’t close all your credit card accounts the moment you pay them off, even if you’re tempted. Credit age and credit usage are two important factors in your credit score that you could inadvertently damage by ending all of your credit relationships.

What can I do with a high interest rate credit card?

If your high-interest credit card is preventing you from paying it off, you might want to consider alternatives. One solution might be to transfer the debt to a balance transfer card with a low promotional APR. Forbes Advisor’s Balance Transfer Calculator will show you how much you could save.

Other options to consider include taking out a personal loan, which may come with a lower interest rate than what you pay on the card, or reallocating your budget to prioritize this debt.