Debt can be a daunting number to pay off. However, with a debt repayment calculator, this tool can help those set a realistic plan on how to pay off their outstanding debt. In this article we thoroughly explain what a debt repayment calculator is and how one could utilize this tool to set up a clear plan.
What Is Debt Repayment?
In short, debt repayments are multiple or a lump sum payment made to pay off one’s existing debt. Paying off your debt comes with a plethora of benefits such as increasing your financial security, improving your credit score, increasing your future savings, and eliminating the emotional toll debt can cause.
Despite how small or large debt can be, it is important to pay off debt since it can lead to having more financial stability.
How Does Debt Repayment Work?
When one takes out a loan, there are terms and conditions that are made prior to this loan being distributed. To repay this debt, one will have to follow these guidelines, in addition to paying off the interest being generated off this debt.
In short, debt repayment is paying back the money taken from the lender in addition to the agreed upon interest rate.
4 Steps for Using Credit Karma’s Debt Repayment Calculator
Credit Karma has set up a debt repayment calculator to help those devise a plan on how to realistically pay off their debt. This calculator shows a timeline on when one could expect to pay off their debt and this timeline can fluctuate depending on one’s expected monthly payment or desired payoff time frame.
Step 1: Calculate Your Owed Balance
Firstly, one will have to put in the amount of debt they need to pay off. This would be the “principal” of the loan or the amount of money borrowed.
By putting in this number, Credit Karma will calculate how much interest has grown on this original amount.
Step 2: Consider Your Interest Rate
Secondly, put in your interest rate that was agreed upon when getting this loan. You can overlook the terms and conditions of the loan to make sure you have an accurate rate.
Once you find this interest rate, Credit Karma will be able to more accurately calculate how much interest has grown on the principal amount.
Step 3: What Is Your Timeline?
Credit Karma gives the user two options to use: the Expected Monthly Payment amount or the Desired Payoff Timeframe in months. So, if you have a set amount of money that you wish to set aside every month, put that number in the Expected Monthly Payment option.
These two options allow the user to adjust the desired payment or timeframe to see which plan would be best suited or most realistic for them.
Step 4: The Breakdown
After inputting the Balanced Owed, the Interest Rate, and the Desired Payment or Desired Timeframe, Credit Karma outputs a plan the user can utilize to repay their debt. If the user did a Desired Monthly Payment plan, Credit Karma would show how long this process would take by paying that amount per month.
On the other hand, if the user utilized the Desired Timeframe option, Credit Karma would show them how much they would need to pay per month to achieve paying off this debt during that time period. Lastly, Credit Karma provides a pie-chart showing how much the user is paying off the principal amount and how much they are paying in interest.
Types of Debt
Debt comes in all shapes and sizes. Some of the most common debt incurred comes from student loans, credit card bills, medical bills, and automobile loans.
Student loans are one of the most common debts incurred in America. Roughly $1.57 trillion is owed from students with outstanding debt and more than 30% of college attendees take out student loans to pay for their education.
This loan offers financial support to those who would not be able to attend college otherwise. Additionally, these loans typically have lower interest rates than private loans.
Credit card debt is a product of the user’s outstanding balances that carry over monthly. This type of debt can accumulate quickly and credit card’s do tend to have a higher interest rate.
In America, the average credit card user has around $5,000 of outstanding balances.
This type of debt occurs when one is unable to pay off health care fees or other related expenses. Even with insurance, sometimes they only cover a portion of these bills leaving the outstanding balance to the person who needed that medical help.
One can negotiate an interest free payment plan to pay off these bills, however that goes on a case by case basis. For those who do have medical debt in the United States, the average is roughly around $2,500.
This loan is taken out by a borrower to pay for a commercial or private vehicle. This type of loan’s interest rate can fluctuate depending on the borrower’s current credit score as well as other external factors.
Typically, the interest rate is around 5% to 6% for those with an average credit score, however these interest rates can range from 3% to 14%.
Debt tends to fall into four categories: secured, unsecured, revolving, or installment. Secured debt is a type of debt that is used as collateral over a property or automobile.
Due to this the two most common types of secured debt are mortgages and auto loans. Secondly, unsecured debt is a type of debt that is used to help the user pay for something.
Examples of this are student loans, medical bills, or other personal loans. Revolving debt includes debt that isn’t a set amount for a specific time period; this type would include credit card bills.
Lastly, installment debt can include both secure and unsecured debt since it is a loan that has to be repaid to the lender in regular installments.
Pros & Cons of Using a Debt Repayment Calculator
The debt repayment calculator allows the borrower to build up an accurate timeline of when they should expect to pay off their debt. If all the information inputted into the calculator is correct, this can be a great guide for those who wish to repay their debt.
However, in order for the calculation to be accurate, the borrower has to follow the recommended or expected monthly payments to achieve a certain timeline. When setting up a plan on how to repay your debt, create realistic expectations (in either monthly payments or desired timeline) so that this calculator can precisely tell you when this debt will be fully repaid.
How to Conquer Your Debt
Even though debt can be consuming to think about, setting up a clear-cut plan on how to conquer your debt will lead you to better financial health. By using Credit Karma’s Debt Repayment Calculator, this tool will help you devise this plan in expected payments or desired timelines.
Talk to your financial advisor if the plan Credit Karma outputs is realistic and achievable. If you do not have a financial advisor, learn more here on how to get one and how they can help you manage your financial health.
Frequently Asked Questions
How Do You Calculate Debt Repayment?
Debt repayment is calculated using the balance owed, the interest rate, and the expected monthly payments or desired timeline. By inputting these factors, the calculation will tell you how long or how much you will have to pay to repay your debt.
How Long Will it Take Me to Pay Off My Debt?
That answer depends on how much debt is owed, how much the interest rate is, and how much you can pay on a monthly basis. When you have the factors, you can more accurately calculate how long it will take you to pay off your debt.
How Long Will it Take to Pay Off $30,000 in Debt?
This depends on how much you can pay monthly and what the interest rate is on the initial debt. For example, if the interest rate is 12% and you wish to pay off your debt in one year, you would have to pay $2,568 per month to your lender. However, this fluctuates depending on your expected monthly payment, desired payoff time frame, and interest rate.