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Debts Repayment Calculator (Avalanche Method)

Rule Number One of Debt is to get out of it faster than the avalanche of interest bearing down on you. Our Debt Repayment Calculator uses the Avalanche Method to help you pay off what you owe. Input your debts, interest rates, minimum payment and what you can afford to pay each month; our calculator will show you how many months until you are in the clear and how to allocate your repayment to pay as little interest as possible.

What is a Debt Avalanche Calculator?

If you have had multiple debts outstanding at a time, you may be familiar with a feeling of confusion on which debt to tackle first and how to go about doing it. The ‘Debt Avalanche’ method is a personal finance concept that has helped thousands of families manage and repay their debts through prudent financial planning. The concept itself is simple and follows two main principles:

  1. Compile a list of your outstanding debts and rank them by order of interest rate
  2. Make minimum payments on all of your debts except the one with the highest interest rate. For that one, make the highest repayment you can reasonably afford to make each month

By using the Debt Avalanche method, borrowers can start to aggressively pay down the debts that are incurring the highest interest charges. For example, most credit cards have interest rates that can range as high as 19% to 23%. If a borrower has $1,000 due on their credit card, this can rack up to $230 just in interest costs over a year. The Debt Avalanche method can help alleviate this by helping you determine how much to allocate towards paying off your credit card bill each month. Some of the main uses of our Debt Repayments Calculator (Avalanche Method) include:

  • Organizing all your debts in one place to prioritize your repayments accordingly
  • Understanding how much of your excess cash flow you can and should put towards paying down high-interest debt
  • How many months you need in order to pay off all your debts in full based on the cash flow you generate presently

 How to use the Hardbacon Debt Avalanche Calculator

The Debt Avalanche Calculator is a flexible tool that can help you compile your outstanding debts and figure out how much to repay on each in order to be debt-free in the smallest possible amount of time. To provide you with a customized recommendation, the calculator needs the following inputs. The inputs are broken down into two steps:

Step 1:

Name: You can name each debt whatever you like. For example, if you have credit card bills, student loans, and auto loans, you can name them: “Credit Card”, “Student Loan”, and “Car Loan”. This will help you keep track of each debt and input the right information.

Amount you owe: This is the principal still outstanding on the loan.

Annual interest rate: The percentage interest that the bank (or any other institution that you have borrowed money from) is charging you on an annualized basis

Annual fees: Some loans come with additional costs. For example, some credit cards have an annual fee you have to pay to hold the card. If any of your debts have this sort of fee, enter the amount you pay on an annualized basis.

Minimum monthly payment: Some loans (such as credit cards) provide some degree of flexibility where the holder can opt to pay a minimum payment that has to be made each month instead of paying off the full balance outright. If your outstanding loans offer a minimum payment option, enter that minimum payment amount here. If there is no flexibility, then simply enter the total amount you have to pay each month.

Compounding frequency: This number represents how frequently interest gets added to the principal. For example, interest is charged on a daily basis for overdue credit card payments.

If you have multiple debts you want to enter, simply click ‘Add New Debt’ on the top right corner of the calculator, and add in the details of each outstanding debt. All the inputs listed above as part of Step 1 have to be entered for each of the debts you want to model out in the calculator.

Step 2

Amount you can afford to pay each month: Unlike the inputs in Step 1, you only need to enter this number once. This number is the amount that you can put towards paying down your various debts after you have taken care of all your day-to-day expenses each month. In short, this is the amount left over after you have paid off your rent, food costs, transportation costs, etc.  

Understanding the results of the Hardbacon Debt Avalanche Calculator

After you have made all the inputs for each of your outstanding debts above, you should be able to see the results when you scroll towards the bottom of the page. You should see the following three numbers:

Total current balance: The current balance is the total principal amount of all the loans that you have input. For example, if you input loans worth $5,000, $10,000 and $12,000, your total current balance will show as $27,000.

Monthly payments: This number represents the total amount that you will be paying towards your various debts on a monthly basis under the recommendations of the calculator.

Number of months to pay off debts: Based on the outstanding balance and the total amount of monthly payments you can make, this figure is the total months that it will take for your debts to be fully paid off if you follow the recommendations of the calculator.

You will also see a graph and a table below the three aforementioned numbers:

 Evolution of your debts over time: This line graph visually illustrates the trajectory of your debt paydown through each month based on the calculator recommendations. By the end of the last month, you should see all of your debts go down to a zero balance, implying that you will be fully debt-free!

Payment schedule to pay off your debts using the Avalanche Method: This is a table that displays how much you should pay down for each outstanding debt based on the Avalanche Method. The calculator is programmed to prioritize the debt with the highest rate of interest, so you should see your most expensive debt being aggressively paid down. Once that debt is paid down, the calculator will then recommend that you pay off your second most expensive debt aggressively, and so on.

 Learn more about the Debt Avalanche Calculator Inputs

The Debt Avalanche Calculator may seem daunting at first, so let’s break down some of its mechanics to ensure that you enter the accurate, most relevant information.

To start with, let’s discuss the inputs under Step 1 and where you can find them.

Name: This is discretionary based on what you want to name each debt.

Amount you owe: Note that this is the remaining principal you owe (not the original amount of the loan). You can typically find this by contacting your lender or logging into your account if your loan details are available online.

Annual interest rate: Ensure that you have this percentage quoted on an annualized basis. For any doubts, contact your lender or log into your account if your loan details are available online. Alternatively, you can also pull up the original contract that you signed when getting the loan to assess what rate of interest is being charged.

Annual fees: The annual fees charged should also be a component in the loan contract that you signed at the time of obtaining the loan.

Minimum monthly payment: Typically, the minimum monthly payment is a formula-driven number that the lender will provide on any monthly statements they provide to you. For example, credit card minimum payments are typically 1-3% of your outstanding balance plus any interest charges that have accrued.

Compounding frequency: This should once again be available on your loan contract. If you have any doubt though, contact your lender directly to find out.

The best part about this calculator is that you can add up to 5 different types of debts and evaluate your options accordingly. If you have more than one debt that you need to pay, select the ‘Add New Debt’ button as many times as you need and fill out all the Step 1 inputs for each debt.

Next, we will discuss the sole input under Step 2:

Amount you can afford to pay each month: This number should come from your own personal finance budget. Start by adding up all your sources of income each month. Then, deduct all your major expenses like food, transport, rent, mortgage, etc. The residual amount can be entered here which represent the excess funds you can put towards your debt repayments each month.

Frequently Asked Questions

  • 1. What is the Debt Avalanche Method and how does it work?

    Avalanche debt reduction is a personal finance concept that advocates for people to pay off their most expensive debts (i.e., the ones with the highest interest rate) as quickly as possible by making minimum payments on all other debts, and using all excess funds towards the paydown of this most expensive debt.

  • 2. Which is better: Debt Snowball or Debt Avalanche?

    While Debt Avalanche proposes paying down the most expensive debt first, the Debt Snowball method proposes listing out your debt principal amounts from smallest to largest (regardless of interest rate) before paying off the smallest first.

    Each method has its own advantages and it is up to the borrower to determine how they would like to manage their debts. The primary benefit of the Debt Avalanche is that your most expensive debts get knocked off first, meaning that you pay less in interest costs over time.

  • 3. Is Debt Avalanche actually optimal?

    While the Debt Avalanche is a sound strategy in a lot of cases, there is some judgment required at times to assess which debt is most optimal to pay off quickly. For example, a credit card bill of $150 with a 23% rate will still incur less in interest costs per month than a $15,000 car loan with a 6% rate.

    Under the Debt Avalanche, the credit card bill should still be paid off first as it represents the highest rate of interest. However, by applying a critical eye, we know that the car loan has a greater impact in terms of dollars spent on interest costs.

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