In our journey to get out of debt, I have found that I love playing around with debt reduction calculators to see how long it will take and what the impact of lowering interest rates, making extra payments, etc. will have. The best calculator I have found so far is Mary Hunt’s RDRP (Rapid Debt Reduction Planner) over at her website: Debt-Proof Living. Using this calculator, however, requires a website subscription ($24/year) so I did some Googling to see if I could find a free one that I liked.
I didn’t find one that I liked as well as Mary’s but my first place runner up is Quicken’s Debt Reduction Planner. It’s very straight forward: enter your debts, interest rates, required minimum payments, and the payment amount you usually take. The calculator will then give you the info on how long it will take you to pay off your debts and the amount of internet (gulp!) you’ll be paying.
By clicking a series of “next” buttons in the calculator, however, it will give you a few simple strategies for paying your debt off faster/saving interest. The first is to “snowball” your debts. This basically involves paying your debts off in a given order (either by interest rate or by balance amount) and when each debt is paid off, applying that payment to the next debt in line. Quicken calls this “optimizing your monthly payment” and what it really means is that your total monthly debt payment will stay the same and not drop as your debts are paid off. To give you some idea of the power of this method, doing nothing more than snowballing shaved 5 years and almost $30,000 in interest off our debt repayment plan, which included a car loan, a credit card balance and our mortgage.
Other strategies involve making a one time payment toward your debt and finding monthly savings to make additional monthly payments. The calculator will then give you the time and money saved of applying these strategies. It’s very easy to navigate back and forth too so you can play around with adding different amounts to your payments, changing the interest rates on your debts,etc. The Quicken calculator will even save your info from one visit to the next, which is a great feature.
The one limitation that bothered me was your inability to re-order the way in which your debts are paid off. It’s done strictly by interest rate (highest to lowest). What that meant is that it had me paying off my 0% interest credit card debt AFTER my 15 year mortgage. While I understand the logic of paying off more expensive debt first, I don’t plan to leave credit card debt out there for 10-15 years at ANY interest rate.
But given that it’s a free calculator, I give it thumbs up and will be visiting again!