August 24th, 2019 | Posted in Tools
Debt: a four-letter word, general burden, and delayer of dreams.
However, with a good plan and a healthy bit of persistence, we can leave our loans behind (and if they don’t dance then they’re no friends of mine).
With that in mind, I’m pleased to introduce this Debt Payoff Planner, a new tool which will help you:
- Organize your loans in one place
- Crunch the numbers to determine the total cost of your loans (interest + principal), and the date when each of your loans will be paid off
- Design a month-by-month plan to get you from today to your debt-free future
- Perform what-if analyses that illustrate how the final answers change if we tweak the assumptions
A lighter, brighter, debt-free future is on the horizon. Click the Add Loan button below and let’s get started!
Loan Inputs
| Total Monthly Payment ($) | |
| Payment Type |
Total Monthly Payment: Must be greater than or equal to the minimum monthly payments on all of your loans combined
Payment Type:
- Avalanche means that your excess payments (above and beyond your loan minimum payments) are used to pay off the loans with the highest interest rate first
- Snowball means that your excess payments are used to pay off the loans with the smallest balances first
- The avalanche method is optimal from a mathematical perspective — it allows you to minimize the total interest paid across your loans
- However, the snowball method allows you to pay off your small loans faster than in the avalanche method. Racking up quick wins can provide motivation to stay on track with your debt repayment strategy
Compounding: When calculating interest on your loans, this tool uses monthly compounding
Outputs
Alert! As per my calculations, at least one of your loans will not be paid off within the next 50 years.
Perhaps something is wrong… please double check your inputs.
The chart below shows the total amount owed on your loans, on a month-by-month basis from today up until the date when your loans are fully paid off.
Adding in some more detail, the next chart shows the balance outstanding on each of your loans individually.
In the chart legend, you can click the name of a loan to toggle the view ON or OFF.
This chart shows how your total monthly payment will be allocated amongst each of your loans.
Notice how the total payment stays the same in each month. When one loan gets paid off, the payment that you were making on that loan is now applied against a different loan.
The order of priority for how you pay off your loans is determined by whether you use the avalanche method (highest interest rate first) or the snowball method (lowest loan balance first).
In the chart legend, you can click the name of a loan to toggle the view ON or OFF.
Click the button below to generate a link for your custom scenario. This link will save all of the loan inputs that you’ve entered above, so that you won’t need to punch them in again.
Detailed Loan Tables
Click the + icon(s) below to show the nitty-gritty details for each of your loans (a month-by-month record of your loan payment, interest paid, principal paid, and loan balance).
What-If Analysis
Below, we’ll sketch out some new scenarios and see how the answers change.
What-If Analysis #1
How do the final results change if you use the avalanche or snowball method?
| Total Interest Paid | Debt-Free Date | |
|---|---|---|
| Avalanche | ||
| Snowball | ||
| Difference |
Typically, the avalanche method allows you to become debt-free more quickly, and allows you to pay less interest in total.
However, the results of the two methods can be the same if:
- You only have a single loan to pay off
- Your total monthly payment is equal to the minimum monthly payments of all of your loans combined (i.e., there isn’t “excess” money that can be used to pay off your loans more quickly)
- The loans with the smallest balances are also the loans with the highest interest rates — meaning that the two methods produce the same priority ranking
What-If Analysis #2
Now, how would the final results change if you increase your total monthly payment?
The table below shows how your total interest paid and debt-free date would change using different assumptions for your total monthly payment (while keeping everything else constant).
| Change in Monthly Payment |
Monthly Payment | Total Interest Paid | Debt-Free Date |
|---|---|---|---|
| + $10 | |||
| + $50 | |||
| + $100 | |||
| + $ |
Use the input cell in the last row to test out different increases to your total monthly payment (e.g., +$25, +$200, etc.).
Keep an eye out for the impact on your total interest paid — a small increase to your monthly payment can create big savings!
Final Thoughts
As an accompaniment for this tool, also check out this article — How to Become Debt-Free. You’ll find some thoughts on the avalanche vs snowball methods, and an illustrative example which walks through how you can use this tool to design an efficient debt repayment strategy.
For my fellow spreadsheet junkies, feel free to download a bare bones version of this Debt Payoff Planner in excel form. I built this at the very start of the project, in order to work through the math before committing it to code.
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Header image credit: Lamiya Dary
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