Credit Cards Payoff Calculator
This is a calculator that creates payment schedules of multiple credit cards using the Debt Avalanche method, which prioritizes financial feasibility. To evaluate the repayment of a single credit card only or for further information about credit cards and how they work, please visit our credit card calculator.
Credit Cards are a form of unsecured loan with relatively high interest rates, making them heavy burdens for many people when used recklessly. Although there are situations where it can be beneficial to having more than one and using them responsibly, such as to reap certain rewards on one and transfer balances on another, it can be confounding to imagine why many hold over 5 or more and carry high balances they are unable to pay off each month. This Credit Cards Payoff Calculator provides the ability to input at the most 20 different CCs, but we hope no one will actually ever have to use that many!
Quick Tip: Some CCs come with a waiver for first offence late payments. If not, try contacting customer service of the issuer and they may waive it. They can also be negotiated on interest rates, though they are unlikely to if the holder doesn't have a good history of timely payments.
It is a generally accepted good practice to allocate enough funds in order to successfully pay off all CC expenses for each month in full. Of course, there are situations where attention must be diverted elsewhere; valid reasons can include medical emergencies, costlier debt, job loss, emergency recovery. This fund is represented by the first box at the top, the amount payable per month towards CCs.
Quick Tip: The calculator assumes that no further transactions are made on any of the CCs, minimum payments stay the same, and interest rates are static. CC issuers are required to give 45 days' notice to anyone they selectively raise the interest rates on, and they can only do it after the first year.
The Credit Cards Payoff Calculator can help to arrange proper repayment of multiple CCs in order to avoid incurring unnecessary expenses such as interest and minimum payment penalties. Utilizing the amount payable per month, funds from it will first be allocated towards at least meeting the minimum payments for each CC; it is important to pay these dues at the end of each month to avoid the hefty fines and negative marks against credit reports. Even then, we highly recommend paying off all balances in full if possible.
Snowball or Avalanche?
This might come as a surprise for some: in a 2011 academic study, people tend to make a costly mistake when choosing which debt to pay off first. They choose to pay off the smallest balance instead of the highest interest rate, also known as the Debt Snowball method. But researchers like to call it 'debt account aversion' instead, a concern for having too many different number of debts rather than the combined cost and interest rates associated with each. Coauthor Cryder explained it best:
"If you take some debt amount, say $50, and you break it into two debts of $25, it feels heavier; it's psychologically more burdensome than the same amount in one debt."
It becomes easy to see how tempting it is to erase the low balance low interest debt first. Famous radio commentator Dave Ramsey is a huge proponent of this method; him and many other supporters of it say it helps to stay committed to a goal.
Psychologically, people are more likely to adhere to something when tangible progress is visible, whether it's the elimination of debt, shedding a certain number of pounds, getting a certain grade, or completing any task for that matter. Rather than taking the shortest main road to an end goal, it is possible to branch off into side paths that eventually wind back into the main road. While the side paths might make the entire trip much longer, it is softer on the feet than the rough main road, has beautiful scenery to brighten the mood, and supporters standing on the side cheering with encouragement. It might be the more irrational method but many people find this approach to handling debt easier than the Debt Avalanche method and have succeeded in utilizing it. It comes down to different strokes for different folks, and as long as there is elimination of debt involved, there is proactivity towards an end goal and that's what matters most.
However, seeing as our calculator works logically and not emotionally, it understands that the Debt Avalanche is the more financially-reasonable method because it results in less interest payments; after accounting for minimum payments, it goes down the list of all CCs sorted by interest rate in descending order until all are paid for.
Dealing with High Interest Rates
If interest rates of credit cards are high, there are some ways to try and lower them:
- Apply for credit cards with lower interest rates and transfer the balances of the high interest rate cards over. Find a list of good balance transfer credit cards. Be sure to read and understand the interest rates for balance transfers, fees, and other terms that may apply.
- Apply for loans with relatively low interest rates and use them to pay off credit cards containing higher rates. House refinances, House Line of Credits, and personal loans are good candidates. Be sure to understand the fees and costs pertaining to loans. Use our Personal Loan Calculator to estimate the real APR of the loan, which should be at least a few points lower than credit card interest rates to work.
- Contact credit card companies to try and negotiate down interest rates or balances. Most of the time, this won't work until monthly payments have stopped, which is generally not recommend due to its negative impact in other areas of personal finance.
Quick Tip: For anyone late in their credit card payments, physical mail or phone calls from debt settlement companies are likely to follow. However, they are normally not good options and can be scams .