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The Math Behind Paying off Your Debt Quicker

Debt is debilitating. It makes you feel like you’re barely keeping your head above water and fighting to breathe. This is really scary when you consider that a reported 73% of consumers die in debt and that percentage doesn’t seem like it’s going to get any smaller.

In 2016 the average household with credit card debt owed $16,425, while the average mortgage was $180,018. To pay off this debt will take years — even decades — so it’s not likely that the average person in debt will be able to keep himself from drowning in debt anytime soon.

Part of this is because people don’t understand the math behind interest rates, which makes it getting out of debt more complicated. Interest rate make paying off a seemingly manageable amount of debt such as $16,425, and makes it exhausting.

That’s why debt calculators are so useful. They can show you exactly how much it’s going to take to get yourself out of debt, while also showing you how much paying off that debt will cost in interest payments.

In order to help you better understand this, below are examples of how long it will take to pay off debts by making the minimum monthly payments, and how much quicker you can pay that debt off by adding a little more cash to your monthly payments.

Credit Card Debt

All of the scenarios below are explained using the Free Debt Snowball Calculator.

Free Debt Snowball Calculator

Let’s say your family has the 2016 average household credit card debt of $16,425. Your interest cost is 18% and your minimum monthly payment is $250. As you can see if the graphic above, if you only make your monthly payment it will take you 285 months to pay off your debt. That comes out to 23 years and 9 months.

Credit card Debt

That’s an incredible amount of time, especially when you consider that it’s likely an amount of debt was likely acquired over the span of just a few years. But it get’s worse.

As indicated in the graphic below, in order to pay off your debt by only making minimum monthly payments, it will cost you $54,663.42 in interest. That means to pay off $16,425 in credit card debt, it will cost you a total of $71,088.42 — over four times what you owed.

Credit Card Debt Graph

The craziest part of all this is that it will take over a decade before you’ve truly made a dent in your debt. As you can see in the graph, it will take twelve plus years before how much you owe is even down to $14,000. The principal of your debt will get paid off much quicker in the years to come but, given that you will have already paid $36,000, that’s hardly good news.

Free Debt Snowball Calculator 02

A much better strategy would be to increase the amount you put towards paying off your credit card debt each month. Even finding a way to bump up your monthly payment to $280 to can make a huge difference.

Credit Card Debt Graph 02

As you can see from the graph, this payment amount will cut your time in debt in half, while also saving you $31,227.57. That’s a huge sum of money and all you have to do was find a way to add $30 a month to your payment—whether that be by cutting down on how much you eat out or driving an Uber one night a month.

What if instead of just increasing your monthly payment you wanted to be really aggressive in paying off your credit card debt? Let’s say you wanted it gone in five years. What would that you look like?

Free Debt Snowball Calculator 03

In order to eliminate the debt in less than five years, you would have to increase your monthly payment by $175 dollars — a total payment of $425. This may seem like a lot of money but as you can see by the graph below, it’s well worth it, as it would save you $46,344.79.

Credit Card Debt Graph 03

Mortgage Debt

Similar scenarios can be played out using an Early Mortgage Payoff Calculator. For example, let’s say you have a roughly the average remaining mortgage of $180,00, with an interest rate of 4% and 30 years to pay it off.

Early Mortgage Payoff Calculator

This will make your monthly payment a very manageable $859.35. However, as you can see from the chart to the right, a large percentage of your payment is going towards interest. In fact, of the first $859.35 you pay, only $259.35 will go towards the principal of your loan. The remaining $600 will be applied to your interest.

Mortgage Interest

In the end, you will have paid $309,365.11 to pay off your $180,000.00 loan. That’s enough money to buy another house.

Because of this, you decide that you’re going to do your best to pay off your 30-year mortgage in 20 years.

Early Mortgage Payoff Calculator 02

As you can see from the chart above, to pay off your mortgage in 20 years you will have to increase your monthly payment by $231.42 to $1,090.79

Mortgage Interest 02

In the end, you’ll still end up paying $81,783.50 in interest but that’s almost $50,000 less than paying off that same mortgage over a 30-year span.

As you have seen from the scenarios laid out in this post, increasing how aggressively you pay off your debts can save you a serious amount of money in the long run. Then, once you no longer need to spend money on your debt, you can focus on investing, which is when you’ll be happy about high-interest rates, as opposed to feeling like you’re drowning because of them.

Andrew Mentock is a writer who frequently freelances for Money Nomad and InvestmentZen. When he’s not writing, he’s usually eating sushi, watching basketball, or has his nose in a book. To see more of his work, check out his portfolio.

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