Calculating the time required for paying off credit card debt

Credit Card Payoff Calculator

Calculate the time required to payoff your current credit card debt

Credit cards can be an expensive business. Small debts can rapidly become very big debts, sometimes spiralling out of control and causing serious personal financial stress. Getting out of trouble once you're in it can be tricky, but creating a realistic and actionable debt management plan could be the answer.

Why is it so easy to get into credit card debt?

Due to the way credit cards work it's quite possible to run up massive debts even without spending very much initially. This is because of the effect of interest.

Credit card interest is charged monthly and is then added to the balance of your account. The higher your rate of interest the more you'll have to repay each month. Because of how interest compounds on itself a small debt will eventually grow into a huge and unmanageable figure unless dealt with.

Here's an example:

If you interest rate is 20% and your unpaid balance is $1000, if you spent no more money on your card in one year your new balance would be $1200.

The year after your balance would be $1440. In the third year it would be $1728. Do you know what it would be in year 10?


All from that initial $1000 debt.

Imagine what would happen if you'd kept spending on that credit card. This is how easy it is to get into severe debt with a credit card. So what should you do if you've gotten into trouble?

Make a plan

In order to get out of credit card debt you need to very quickly create a debt management plan for yourself. Here's how to get started:

1. Work out how much you have spare.

Make two lists. One with all of your household earnings, and another with all of your bills and expenses. Make sure you list every single one of your expenses including things like petrol and food as you need an accurate illustration of money you have left spare at the end of the month.

2. Do not stick to minimum payments.

Although you may think only paying the minimum requirement on your card each month will leave money in your pocket it's actually the quickest way to cost yourself more.

By only making the minimum payments you're only paying some of the actual balance. Most of your payment will be going towards interest, and you'll find it takes a vast amount of time to repay the debt in full operating in this way.

You need to overpay as much as you can each month in order to reduce the debt faster. This is where your spare money comes into play. From the budget you did in the earlier step look at how much spare money you have once all bills and expenses have been paid.

Pick a percentage of what's left and use it to pay off your credit card. Don't leave yourself with no money in your wallet, but overpay enough to make an obvious difference to the outstanding credit card balance.

3. Start straight away.

Every moment you wait to start taking action on your debt management plan you are being charged interest. As soon as you've figured out how much you're going to overpay your bill each month pick up the phone and make that first payment.

The sooner you do the quicker you'll start seeing the numbers going down, and momentum is a real help when dealing with credit card debt.

4. Stop using the card.

Put your credit card in a safe place, or if you don't trust yourself consider destroying it completely. Spending more money on your card is counter productive and will only make the job of reducing the debt even harder.

5. Use a credit card payoff calculator.

A very useful tool to use at the beginning of your debt management plan is a credit card payoff calculator.

It's an online calculator that enables you to work out how long it will take you to repay your credit card debt based on a number of different payment scenarios.

If you want to pay your debt off within a year it will tell you how much you need to pay each month in order to achieve your goal. If the payments are too high for you simply extend the amount of time you will give yourself to pay the debt, and it will calculate a new monthly payment for you.

The only figures you need to input into the calculator are your current balance, your interest rate, and the length of time you want to pay the debt completely. Using a tool like this can be hugely valuable as you plan your payment strategy.

Things to remember

Bear in mind that the credit card payoff calculator will give you an illustration only and will not take into account things like interest rate changes. It also won't account for any late fees or charges you may incur.

For that reason you should still double check all the figures to ensure your payment plan is running to schedule.

You should also remember that any extra purchases made with the card will increase your total balance, so any time you use the card you should revisit the card payoff calculator to incorporate your new balance. This way you'll be able to see if you need to increase your monthly payments in order to stay on target.

Don't forget balance transfers

If you're in a position to apply for a new credit card then keep your eye out for low or 0% rate balance transfer cards.

These will allow you to reduce your debt without the added burden of interest being added to your balance each month. If you do switch credit cards don't forget to enter the new interest details on the card payoff calculator so you get an up to date monthly payment figure.

Although being in credit card debt can be very frustrating and even frightening in some cases, an effective payment strategy combined with useful online tools like the pay off calculator can help you deal with the problem very quickly and easily.

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