Debt Calculator

Click here for a Google Sheets copy of the Debt Calculator.

(To make a copy on Google Drive, on desktop click file at the top left, and then click make a copy. On mobile, click the three dots at the top right, click Share & Export, Click Make a Copy)

To download Excel, click File > Download > Microsoft Excel (.xlsx)

Step 1 – Enter Urgent Debt

The first step is to enter in your urgent debt balances (defined below). If you have several accounts/loans add each one necessary. Calculations are automated under each total. Once finished, move to step 2.

Urgent Debt Definition

Urgent debt is categorized here as debt that brings zero value and needs to be eliminated ASAP. Credit card balances are dangerous because they require small minimum payments while interest is being added to your bill, heavily extending the amount of time you are paying in on a single balance. Title and payday loans are particularly dangerous to financial well-being because most people get them when they are in need of cash fast. Interest rates are usually very high with these loans and they put major restraints on budgets. Paying off urgent debt should be prioritized.

Step 2 – Enter Bad Debt

After you have entered your urgent debt, do the same with your bad debt (defined below). Again, be sure to enter all accounts in the calculator. Move to step 3.

Bad Debt Definition

This debt is bad for budgets because it provides no future value. In the case of student loans or car loans, services have already been rendered, and you are simply paying off a previous purchase. Car loans feel as though they are providing us good value because we use cars regularly and they provide high utility. However, cars are expensive, take a long time to pay off, and quickly lose their value. Personal loans could be defined as secured or unsecured loans through banks or through friends or family members. Personal loans with friends or family members can cause a restraint on relationships and often end poorly. Paying these off quickly should be a priority.

Step 3 – Enter Secondary Tier Debt

Enter secondary tier debt here. Home equity loans can be used to provide some utility but can be costly to a budget, and should be avoided if necessary. If you do not have HELOC you can use skip this section. Move to step 4.

Step 4 – Enter Mortgage Payments

Enter your mortgage payment and balance here. Mortgages provide strong utility and future value, though they are still expensive and use up the majority of families’ budgets.

Step 5 – Evaluate Your Debt

Now that you have your monthly payments and balances entered, evaluate your total debt. In the calculator, you can see your total balances for all debt types (calculated automatically) as well as your total debt and total monthly payments. Take some time to evaluate why your balances are where they are, and how you can change your lifestyle and spending to reduce your overall debt.

Step 6 – Build a Plan to Pay Off Debt

There are many different thoughts here on how to pay off debt. Some say that you should pay off the lowest balances first, and then use those payment savings to put onto your next lowest debt. This is a strong strategy, but we will offer another alternative.

You may have heard that you don’t need to pay off some debt because the interest rates are lower than what you can make on the stock market. This may be true for a student loan or a car loan. While this may be true, most people are not spending the right amount of time carefully working their investment portfolios to have any gains here.

Instead, we recommend you work your way to paying off debt left to right (urgent debt first), starting with the smaller balances in each category. This allows you to get rid of debt that leaves you in a challenging position and accumulates faster than you can pay it off. There are opportunities to be flexible, though. For example, if you have debt in the bad debt and urgent debt section, but you have bad debt that has a small balance with small minimum monthly payments that can add to your plan to pay off debt, you can pay that off first, and then reallocate those monthly payments to your next lowest urgent debt plan.

Step 7 – Update Monthly/Adjust Your Spending Habits

Be sure to use the calculator monthly to update balances and payments and keep your plan on track. You will start to see progress quickly if you stay disciplined and follow the plan.

Most find themselves in difficult debt situations due to an emergency, or a few months of overspending. Now that you have started paying off your debt, you need to find a way to avoid poor spending. Urgent debt categories (credit cards, title loans, payday loans) should all be avoided in the future. Bad debt such as car payments or personal loans can be avoided through solid saving and budgeting.

You can find our starter budget here. Building a good budget with knowledge of your debt can be difficult, but ultimately, you will find yourself in a healthier position in the future. Once you have started paying off debt, built a solid budget, and started saving, you are on your way to building financial freedom.