Getting Started: Debt Payoff Plan
In the Debt Payoff Plan section, we can see how each debt will be paid off over time. We can see both the balance of each debt in the top chart… and the scheduled payments in the bottom chart.
We can see the monthly balance and payments over the next 5-years… or the annual balance and payments over the next 30-years.
Repayment Strategies
As a debt is paid off, the platform will automatically roll those payments onto the next debt if that debt has an interest rate above the interest rate threshold. The default interest rate threshold is 4% but this can be adjusted. If a debt has an interest rate above 4% then it will receive extra payments. If a debt has an interest rate below 4% then it will not receive extra payments. For example, a credit card with 19% interest or a line of credit with 6% interest would receive extra payments, but a mortgage or HELOC with 2% to 3% interest would not receive extra payments.
There are two debt repayment strategies… Avalanche: The default is the Avalanche approach which pays off each debt based on the interest rate of each debt starting with the debt that has the highest interest rate first, this leads to the lowest interest paid.
Snowball: The alternative is the Snowball approach which pays off each debt based on the size of the balance starting with the smallest balance first, this leads to the fastest first debt payoff.
You can toggle between the different repayment strategies, and after hitting recalculate, see the effect on the debt payoff plan, the Total Payments Made, the Total Interest Paid, and the Months To Full Payoff.
Adding Additional Debt Payments
You can also put more money towards your debt payoff plan in three different ways…
First Option: The first option is to add an extra monthly payment. This extra monthly payment is applied each month and follows the repayment strategy and interest rate threshold rules.
Second Option: The second option is to add Extra Lump Sum Payments to a specific month, this is great if you expect to receive a bonus payment or commission income at specific points each year. The Extra Lump Sum Payment will be applied in that specific month and follows the repayment strategy and interest rate threshold rules. If all debts with an interest rate above the interest rate threshold have been paid off, then it’s possible that none of the Extra Lump Sum Payment will be applied.
Third Option: The third and final option is to add Specific Lump Sum Payment against a specific debt. This Specific Lump Sum Payment doesn’t follow the repayment rules and will be applied to that specific debt as long as there is a balance remaining. This is great if you want to explore how quickly you could pay off your mortgage for example. Your mortgage typically wouldn’t receive extra payments if it has an interest rate below the Interest Rate Threshold, but you can add Specific Lump Sum Payments to see how quickly you could pay off your mortgage.