Payoff debt by making the minimum payments

Do you know how long it is going to take you  to payoff your consumer debt if all you pay is the minimum required? It all depends on the amount of debt you have. Let’s figure out how long it will take you to payoff debt by making the minimum payments.

  1. First, you need to identify all your debt. Take a sheet of paper or if you have a computer use a spreadsheet program. [Note: You can download Open Office here. This is a free program that works similar to Microsoft Office.] Make five columns on the paper and label them on top as Debt, Interest Rate, Amount Owed, Minimum Payment, and Monthly Interest Cost. If you do not know what the minimum payment is, do the following:
  1. Look at the outstanding balance line;
  2. Multiply it by the corresponding interest rate;
  3. Divide it by 100;
  4. Then, divide it by 12 to get the monthly interest payment.
  • Second, add up how much you owe, the total minimum monthly payments, and the total monthly interest cost;
  • To figure out how much of your payments are actually being applied to principal amount of your loan, subtract the monthly interest cost from the total monthly payments. This gives you the actual repayment amount.
  • Now take the total amount of the debt owed and divide it by the  actual repayment amount. This will give you the total number of months it will take you to payoff that debt.

I understand that some of you might be reading this and not getting it. You might be visual persons. Therefore, let’s use some examples:

Debt                        Interest Rate    Amount Owed   Minimum Payment  Monthly Interest Cost
Credit card 1            14.9%                 400                       16                            4.97
Credit card 2            12%                21,000                    650                         210
Car loan                   10%                25,000                    650                         208.33
Totals                                              $46,400               $1,316                      $423.3

Actual payment amount: $1,316 – 423.30 = $892.70

Months to be debt-free: $46,400/892.70 =  51.98 months or 4 years and almost 4 months (51.98/12)

This is only for three items. If you have more debt, it will take you longer to clear this debt by only making the minimum payments. Plus, you will pay more interest. You need to decide to get debt-free sooner. Make larger payments on your debt. Cut out unnecessary spending. Make a spending plan and use the snowball method the get out of debt! You owe it to your family and to yourself.

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