Debt payoff calculator

Why the minimum payment behaves the way it does

A minimum payment is usually calculated as a percentage of the current balance, with a floor. As the balance falls, the required payment falls with it.

That sounds helpful and is the opposite. Each month you pay slightly less than the month before, so slightly less principal comes off, so the balance falls more slowly, so the payment drops again. The payoff date keeps receding as you approach it.

The middle row in the table above is the fix, and it is nearly free: keep paying what you are paying today, instead of letting the amount drift down. Same money out of your account this month. Years off the payoff.

When the minimum barely dents the interest

At a high enough rate against a percentage-based minimum, almost the entire payment goes to interest and the balance barely moves. Push the APR up in the tool and the payoff time stops being measured in years and starts being measured in decades.

This is not a trick question or an edge case. It is the ordinary arithmetic of a high rate meeting a shrinking payment, and it is why high-interest debt is treated as an emergency in a way that other borrowing is not.

Why paying this down beats most investing

Clearing debt at a high APR produces a guaranteed return equal to that rate. There is nothing uncertain about it — every dollar of balance removed is interest you will definitively not pay.

Compare that with an investment return, which is a hope. Very few investors expect to reliably earn what a high-rate card charges, and none can guarantee it. That asymmetry is why paying down expensive debt usually comes before investing — with the standard exception of an employer match, which is a larger guaranteed return still.

Order of attack, when there are several debts

Two approaches, and the argument between them is more about people than arithmetic:

• Highest rate first. Mathematically optimal — it always costs the least in total interest.
• Smallest balance first. Costs slightly more, but clears individual debts sooner, which some people need in order to keep going.

The best plan is the one actually completed. Someone who clears their debt on the slightly costlier route finishes ahead of someone who abandons the optimal one.

What this ignores

New spending on the card, fees, promotional rates expiring, and variable APRs that move. Minimum payment formulas also differ by issuer — some add the month’s interest and fees on top of a percentage.

Your cardholder agreement has the exact formula and your statement has your APR. Use those rather than the defaults here.