How the Debt Payoff Calculator works

The formula

Step by step

1. Each month, interest accrues on every debt at its APR ÷ 12.
2. The minimum payment is paid on every debt that still has a balance.
3. The entire remaining budget attacks one target debt — the lowest balance (snowball) or the highest APR (avalanche).
4. When a debt is cleared, its payment rolls over to the next target, accelerating payoff. This repeats until every balance is zero.
5. A worked example using the calculator's own defaults: a $6,000 credit card at 22.9% with a $150 minimum, a $12,000 car loan at 6.5% with a $320 minimum, and a $4,000 personal loan at 11% with a $120 minimum, plus $300 extra. The budget is $890 a month throughout. Avalanche clears everything in 28 months for $2,730 of interest; snowball takes 29 months and $3,191 — a $461 and one-month gap, smaller than the argument usually implies.
6. The two methods differ only in the order they attack. Avalanche pays the credit card, then the personal loan, then the car. Snowball pays the personal loan, then the credit card, then the car. Same debts, same budget, so the difference on screen is the cost of the ordering and nothing else.
7. Snowball ranks by balance after that month's interest AND that month's minimum payment have been applied, not by the balance you typed in. Where minimums differ this can invert the intuition entirely — with two $5,000 debts, one at 5% with a $100 minimum and one at 25% with a $500 minimum, snowball clears the higher-APR debt first, because the larger minimum shrinks it faster.

Assumptions & limitations

• Fixed APRs and a constant total monthly budget.
• Minimum payments stay fixed (real card minimums usually shrink as the balance falls).
• If minimums can't cover interest, the debt won't amortize — the tool flags this case.
• Interest is accrued monthly at APR ÷ 12. Real card issuers accrue daily on an average daily balance, so a real statement will come in a little above this model's figure; which method wins does not change.
• The tool models several separate debts. Inside a single card, federal law already forces avalanche on the issuer: anything you pay above the minimum must go to the highest-APR balance first. The choice this calculator offers exists between accounts, not within one.
• The simulation stops and flags failure the moment a month makes no progress and the budget is exhausted, rather than running to a fake answer. A $10,000 balance at 24% with a $150 minimum accrues $200 of interest in month one, so it is flagged as unpayable immediately.