Formulas and Calculation Methodology
Clear explanations and transparent assumptions for responsible debt planning.
Monthly interest approximation
The repayment tools use r = APR ÷ 1200 as the monthly rate when APR is entered as a percentage. At the start of each simulated month, estimated interest is balance × r. The payment is applied to interest and then principal. The last payment is capped at the remaining balance plus interest.
Real creditors may use daily compounding, average daily balance, promotional rates, late fees, or payment allocation rules that differ from this model. We do not represent these projections as exact payoff quotes.
Fixed-payment simulation
The engine repeats the monthly calculation until the balance is effectively zero or the maximum horizon of 600 months is reached. If the monthly payment is not greater than the first month’s interest, the tool reports that the debt will not amortize under these assumptions.
Totals include modeled interest and actual modeled final payment; displayed dollar figures are rounded for readability, while intermediate arithmetic retains greater precision.
Target-payment formula
For a principal P, monthly rate r, and n months, payment = P × r ÷ (1 − (1 + r)^(−n)). If r = 0, payment = P ÷ n.
The formula assumes a level-rate, fully amortizing debt without fees. If a loan has a balloon payment, variable APR, or irregular schedule, this formula will not describe it precisely.
Avalanche and snowball algorithm
The strategy tool models two debts, accrues monthly interest separately, pays each required minimum (capped at amount due), and allocates the remaining fixed monthly budget to the priority account. The avalanche chooses the higher APR; snowball chooses the smaller original balance.
Any money freed by paying off one debt is redirected to the other. The model assumes minimums stay constant and new charges stop. It flags a budget too small to meet required minimums or a scenario that cannot amortize.
Consolidation model
The origination fee is calculated as principal × fee percentage and, for comparison, is assumed to be financed into the new loan. The monthly payment is computed on principal plus fee. The current-debt comparison assumes a single equivalent balance at the entered weighted-average APR, amortized over the same term.
This is a simplified comparison. Existing debts may have different terms, balances, payment schedules, and APRs. A lender may deduct fees from proceeds instead of financing them.
DTI and extra-payment comparison
DTI = required monthly debt payments ÷ gross monthly income × 100. Extra-payment savings compare two independently simulated schedules with the same opening balance and APR, but different monthly payment amounts.
No calculation includes taxes, collection costs, lender-specific fees, or a predicted credit-score change. Validate important financial decisions against actual creditor documents.