It is often a good thing to take a look at a debt calculator to find the total Real Debt (debt+ interest) that you will pay and when you will have it paid off. If you use a tool like this you can determine the least expensive way (least amount of interest) you will pay by paying off loans in a certain order. You will also see total how much money it will cost you to get out of debt. Further, a calculator/excel chart like this allows you to plug in a different ‘snowball’ or additional money to your loan payments to see how you can save considerably. Thus, I highly recommend using a chart like this at least a few times a year.
I love using a free debt calculator Excel or OpenOffice files like these:
I appreciate the company that put it together you can find them here.
Here are 10 easy steps to using the debt calculator:
1- Input the current date.
2- Update your chart with the current loan names (Creditors), Balance, Interest, Rate, and Payments
3- For the custom column enter in the order you would like to pay off the debts in.
4- To make this much chart easier and fool proof, I enter the debts in the order I would like to pay them off in. Then select under the Strategy drop down menu: Order Entered in the Table.
5- Tally up the amount you have each month towards a debt payment. Subtract that from the minimum you must pay (in the Payment Total column) and you have your snowball payment. 5 = $minimum you have to pay + $extra money you can pay (i.e. snowball payment)
6- Enter your snowball payment which is the additional funds you can add to the minimum you must pay each month into the correct area.
7- Next, experiment with different pay off strategies on the payment Strategy drop down menu. Select different strategies to see what the interest on your debt will be.
8- Which ever strategy gives you the lowest figure, that is in most cases the best way to pay off your loans in.
9- Shows you a curvature in the chart in the order the debt will be paid off. It also shows you in which year and close to the month in which the debt will be paid off.
10- Once you pick a pay off structure you can calculate your Real Debt by adding your Debt+Interest=Real Debt. This would be done with a calculator as I do not see a place on the chart that shows this. So pull out a calculator and add the debt figure from the first chart and the interest figure from the second chart and this will show you your Real Debt figure.
Knowing your Real Debt is important because it gives you or full financial picture instead of just how much you owe, it shows you based on certain criteria how much you will end up PAYING. So it is a huge and important factor in your financial life.
Using this chart you can find the best payoff order/structure in which to pay off your debts. I do have one thing to add to this chart. Although, mathematically correct and math is great because it is never wrong, I find that psychologically if you have a very small loan and you can get rid of it right away, paying that one off first is the best because it makes you feel good about getting out of debt (at least for me). One less loan to worry about etc. Overall, which ever order you feel best about paying your debts off in, is of course up to you, this chart just helps you see which order will save you the most in interest. This chart also helps you see your real debt number (debt you have + interest= Real Debt).
Please comment below if you have any questions about this chart. although I did not create it, I am very familiar with its functions. Also, there are a lot of helpful suggestions, notes, and explanations to the side of the chart on the actual excel file that you download.
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