How Is Debt Payoff Calculated? The Full Methodology

Published July 3, 2026

Every plan on this site is built from the same simple loop, run once per calendar month until every balance hits zero (or 100 years pass — see the limitations below). Each month, three things happen in this exact order: interest is added to every open balance, minimum payments go out to every debt, and whatever is left in the budget goes to a single target debt. That’s the entire engine. Snowball and avalanche differ only in step three — which debt is picked as the target. The interest formula and the monthly budget rule are identical no matter which one you choose.

This page documents that math exactly as the calculator implements it, with a full worked example you can check by hand. If you want the practical comparison of the two strategies instead, see Debt Snowball vs. Avalanche.

Interest accrues before your payment, every month

For every open debt, each month’s interest is:

interest = round( balance × APR ÷ 12 )

rounded to the nearest cent. A card with a $1,000 balance and a 24% APR accrues round($1,000 × 24% ÷ 12) = round($20.00) = $20.00 in interest that month — before any payment is applied. The calculator adds that interest to the balance first, and only then subtracts your payment, the same way a simple monthly-compounding loan works. It does not compound daily off an average daily balance the way most real card issuers do — see How Credit Card Interest Actually Works for what that gap looks like in practice, and why your real statement will never match this, or any other calculator, to the exact cent.

Your monthly budget never changes — freed-up minimums roll over

The budget is fixed once, at the start, as the sum of every debt’s minimum payment plus your extra payment, and it never shrinks, even after a debt is paid off: budget = Σ(minimum payments) + extra.

Pay off a debt and its minimum payment doesn’t disappear from your pocket — it gets redirected. Once a debt reaches zero, the dollars that used to be its minimum simply roll into whichever debt is currently the target, on top of whatever extra payment was already going there. This rollover happens identically under both strategies; it’s a property of the budget, not of “the snowball.” A two-debt, 0%-APR example makes it easiest to see with no interest muddying the arithmetic: a $100 and a $200 balance, $50 minimum each, no extra, so the budget is $100/month throughout. Month 1: $50 goes to each, leaving $50 and $150. Month 2: the first debt needs only $50 more — it gets its own $50 minimum and hits zero, while the second debt’s minimum absorbs the rest of that month’s $100 budget, with nothing left over yet to redirect. Month 3: with the first debt gone, its former $50 minimum joins the second debt’s own $50 minimum for a combined $100 payment against its $100 balance — cleared in a single month. Three months, zero interest, done.

How the calculator picks which debt gets the extra dollars

After minimums are paid, anything left in the budget — the extra payment, plus any freed-up minimums — goes to one target debt at a time, cascading to the next-highest-priority open debt the moment the current target hits zero within the same month. The two strategies differ only in how that target is chosen:

• Snowball targets the debt with the smallest current balance. Ties break to the higher APR, then to input order. Critically, the target is sticky: once chosen, it stays the target every month until it’s paid off, even if another debt’s balance drops below it in the meantime.
• Avalanche targets the debt with the highest current effective APR, re-evaluated fresh every month. Ties break to the lower balance, then to input order. Avalanche is never sticky — it always re-ranks.

0% intro APR and the promo cliff

A debt can carry a promo rate and a number of promo months: for that many months, the debt’s effective APR is the promo rate; from the following month onward, it reverts permanently to the normal APR. The schedule marks the switch with a “promo expired” event in the very first month the standard rate applies — a record of what already happened to that month’s interest, not an advance warning.

Here’s the part a calculator that “just runs avalanche” can miss: because avalanche ranks by the current effective rate, a 0% promo makes that debt look free, so avalanche deliberately deprioritizes it while the promo lasts, in favor of whatever else is accruing real interest. That’s the correct call for this month, but it’s myopic about the future — it can’t see the cliff coming. If the promo balance is still large when the rate reverts, the newly high interest on that lingering balance can outweigh what avalanche saved elsewhere, and snowball — which ignores rates entirely and may have been quietly paying that same balance down the whole time — can end up cheaper overall. This isn’t a bug; it’s the necessary consequence of always ranking by today’s rate. Debt Snowball vs. Avalanche walks through a real scenario where this flips the winner. Our own randomized test suite (150 seeded scenarios) confirms avalanche’s total-interest advantage holds whenever every rate is fixed, and only breaks in the presence of exactly this promo-cliff pattern.

Worked example: $1,000 at 12% APR, paid off in 11 months

One debt, no extra payment, so there’s no strategy to choose between — just the interest and budget rules above, run start to finish:

Eleven payments and $58.98 in total interest — and the last payment is only $58.98, because the calculator never pays more than the remaining balance plus that month’s interest. Load this exact scenario in the calculator →

What this calculator doesn’t account for

This is an amortization model, not a substitute for your actual statements. It compounds monthly instead of daily, assumes your APR and minimum payment never change outside of a modeled 0% promo, and doesn’t account for late fees, annual fees, cash-advance rates, credit limits, or the credit-score effect of paying off — and possibly closing — an account. It also only knows about the debts and numbers you enter; it can’t see your income, expenses, or emergency fund. This is an educational tool, not financial advice — for a plan that accounts for your full financial picture, talk to a qualified, ideally fee-only, financial advisor.