Debt-free living is everyone’s dream. But sometimes, we just fall deeper and deeper into debts, and it feels like there is no way out of them.
However, it would be easier to plan a loan repayment if you know how much time it would take to steer clear of the debts by paying a certain sum of money each month.
If you are curious about your loan repayment details, a Debt Payoff Calculator can be of help.
What is the Debt Payoff Calculator?
Debt Payoff Calculator is a financial calculator that calculates how much money one needs to pay per month, including interest, to be debt-free within a specific time. It takes an input of the loan principal, annual interest rate, and the loan payoff period.
Based on the input, the debt payoff calculator will calculate the total amount that has to be paid, monthly payment required to achieve the goal, and also the real interest that has to be paid during the period. With the data acquired from the debt payoff calculator, you can plan your repayments accordingly.
Before Using the Debt Payoff Calculator
A Debt Payoff Calculator will calculate values based on the user’s input. Before you use a debt payoff calculator, you must be aware of the different terms of the calculator.
Here are the different terms that the debt payoff calculator uses:
- Debt: The amount of money that you owe to the lender.
- Principal: The original sum that you had borrowed, exclusive of all other charges.
- Annual Interest Rate: Annual Interest Rate, or Annual Percentage Rate, or Base Interest is the interest rate that has to be paid each year, on the principal.
- Payoff Date: The date you wish to clear off your debt in full.
- Monthly Payment: The amount of money that has to be paid each month to be debt-free within the Payoff date.
- Interest: The fee for borrowing the money. It increases based on the APR rate.
- Amount: The total sum of money that needs to be paid before the payoff date. It includes both the principal and the interest.
Debt Payoff Strategy
Getting rid of debt is not always as easy as getting into one. It requires a good plan and a strict routine. Most people struggle with debts, mainly because they do not have a plan to clear off their debts.
Here is a step-by-step strategy that will help you to achieve your payoff goals within the payoff date.
Make a Monthly Budget
Budgeting is the first step for planning a debt payoff. Make a list of your income and expenses. Making a list of all your expenses will help you think of lots of ways to reduce your expenses.
It will help you find out where you are overspending and where you have the provision for reducing expenses. Include your monthly loan payments as the priority at your monthly budget.
Do Not Take Additional Loans
Once someone falls under the burden of loans, they tend to take additional loans. However, if you want to pay off your debts, do not even think of taking further loans.
The more loans you take, the higher the monthly instalments and interests you have to pay. Hence, instead of taking loans to solve your financial problems, think about cutting down your expenses.
Having too many loans could be challenging to manage. It is a better idea to consolidate all loans into one loan. These could be your personal loans, credit card debts, or any other loan. Consolidating each loan into one loan will help you to keep a close track on your monthly loan payments.
Keep Track of Interest Rates
For all debts, keep track of your interest rates, whether it is your credit card debt, bank loans, or other lender debts. Once you have a track of all your debts, you can pay off the debts with the lowest amount first to manage more effectively, or clear as much debt as possible by allotting more money into it. Choose a strategy that is more optimal for your needs.
No Late Payments
Late payments will harm your credit score, and you will have to pay the penalty at the end. Ensure that you clear off all your debts on time every month since the more you delay, the more you need to pay.
However, it can be quite challenging to keep track of payment dates which can lead to unintentional late payments. To get rid of these, request your bank to automate the monthly loan payment process.
Start Saving Right From the Beginning
It can be harassing to gather all the required monthly payment amount right at the verge of the payment date. To get rid of such circumstances, start saving for the next payment, right from the start of each billing cycle. Keep your monthly repayment amount separately on getting your salary.
Stick to Your Plan
Making a plan is just the beginning; the main struggle is sticking to it. Before making any financial decision, check if your budget can afford it. Live within your means and save whenever you can.
What Happens After Paying Off Your Debts?
Once you have broken the shackles of debt, you can finally live a debt-free life. However, you need to be modest, and not overwhelm your bank account with excessive spending, or you might find yourself back in a tight spot.
Being out of debt does not mean you are free to take another loan. Although you may swear not to take any more loans unless an emergency occurs, you may still end up buying a new car or home, or take an expensive vacation trip on EMIs, and return to debt.
You need to change your perspective over time to one that values savings, and stop being a spendthrift. It would be best if you can focus on saving funds for any emergency, so that you do not have to go broke, and end up taking more loans, and end up back to the debt cycle.
Buy accessories only when you can pay in full, and stick to the plan of saving first and spending later.
Take vacations only when you can genuinely afford it. Use a credit card that has a minimal or 0% interest rate.
If you desperately need an emergency fund, make sure to research lenders and take a loan from the one offering it at the lowest APR.
Debt may sometimes be enticing, and you may take debt for many reasons, whether it is to fulfil goals, or for survival, and emergencies.
However, unless you have planned for the payoff, you will have a hard time while repaying the same. Hence, most people these days use a Debt Payoff calculator that takes off the grunt work of calculating debt, years of repayment, and helps you plan for payments, to get out of debt at your desired time.
With the Debt Payoff Calculator, managing and nullifying debt can be much simpler than you could think.