How it works
Each month the calculator does three things, for as long as any debt is left:
- Adds a month of interest to every balance.
- Pays the minimum on every debt.
- Puts whatever is left of your monthly budget on one debt: the one with the highest rate (avalanche) or the smallest balance (snowball). When that debt is gone, its money rolls on to the next one.
interest this month = balance × yearly rate / 12
extra this month = monthly budget - minimum paymentsAvalanche or snowball
Avalanche pays the most expensive debt first, so it never costs more interest than snowball, and usually costs less. Snowball clears the smallest debt first, which gives you a win sooner and frees up its minimum payment. Many people find that easier to stick with. If the two plans are close, choose the one you will keep doing.
A worked example
A 1,000 card balance at 12% a year adds 1,000 × 0.12 / 12 = 10 of interest in the first month. Pay 100 that month and the balance falls to 1,000 + 10 - 100 = 910. The next month's interest is a little lower, so more of the same payment goes to the balance.
What it leaves out
- Rates stay fixed and no new spending is added to the debts.
- Real minimum payments often fall as the balance falls. Here they stay as you enter them, which is a little faster.
- Fees, 0% promotional periods and early repayment charges are not modelled.
Read more in snowball vs avalanche. Build a small cash cushion too, so a surprise bill does not go back on a card: the emergency fund calculator helps with that.