Debt Snowball Calculator

Debt can feel overwhelming, but the Debt Snowball Method offers a powerful, structured way to regain control of your finances. This page introduces you to the Debt Snowball Method, explains the formulas behind it, and provides a user-friendly calculator to help you design your debt repayment plan.

• What is the Debt Snowball Method?
• Debt Snowball Formula
• How to Use the Debt Snowball Calculator

What is the Debt Snowball Method?

The Debt Snowball Method is a debt repayment strategy that prioritizes paying off debts from the smallest to the largest balance, regardless of interest rates. The idea is to gain psychological momentum by quickly eliminating smaller debts. As each debt is paid off, the payment amount for that debt is rolled into the payment for the next debt, creating a `snowball` effect.

Benefits of the Debt Snowball Method:

• Psychological Wins: Paying off smaller debts quickly boosts motivation.
• Simplification: Focus on one debt at a time.
• Momentum: Payments grow larger over time, accelerating debt repayment.

Debt Snowball Formula

The Debt Snowball Method follows these steps:

1. List All Debts: Arrange debts in ascending order by balance.

2. Minimum Payments: Pay the minimum amount on all debts except the smallest.

3. Snowball Payment: Allocate all extra money toward the smallest debt.

4. Roll Forward: Once a debt is paid off, apply its payment amount to the next debt in line.

Here’s the formula to calculate the Months to Pay Off a debt:

\text{Months to Payoff} = \dfrac{log(\frac{\text{Payment}}{\text{Payment} - \text{Debt Amount} \times \frac{\text{Interest Rate}}{12}})}{log(1 + \frac{\text{Interest Rate}}{12})}

Where:

• Payment: Monthly payment amount.
• Debt Amount: Remaining balance of the debt.
• Interest Rate: Annual interest rate (as a decimal).

How to Use the Debt Snowball Calculator

Our calculator simplifies the Debt Snowball Method by automating the calculations. Here’s how to use it:

• Input Your Debts:
  • Add the name, balance, interest rate, and monthly payment for each debt.
• View Results:
  • The calculator will sort debts by balance and compute the payoff schedule.
• Follow the Plan:
  • Use the schedule to make payments and track progress.

  The calculator also provides:

  • A breakdown of total debt.
  • A timeline for debt repayment.
  • Insights into monthly payments and payoff strategies.

  Example: Using the Debt Snowball Method

  Debt List:

  • Car Loan: $10,000 at 4% interest, $200 monthly payment.
  • Credit Card: $3,000 at 20% interest, $100 monthly payment.
  • Student Loan: $15,000 at 5% interest, $300 monthly payment.

  Step-by-Step Plan:

  • Pay the minimum on the Car Loan and Student Loan.
  • Apply any extra funds to the Credit Card (smallest balance).
  • Once the Credit Card is paid off, add its $100 monthly payment to the Car Loan payment, making it $300.
  • When the Car Loan is paid off, roll its $300 payment into the Student Loan, making it $600.

  Using this method, you’ll accelerate your progress and save on interest over time.