Exit plan for your debts

What the page compares

When you have several debts and some money left each month, the question stops being only "how much to pay" and becomes "which debt to put the money on". The page pays your debts, month by month, three ways and sets them side by side: only the instalments, in which each debt follows its own contract; the avalanche, in which everything left over goes first to the debt with the highest rate; and the snowball, in which it goes first to the one with the smallest balance. For each way it says in which month you are free, how much interest you paid and in what order the debts ended.

What you enter

• The extra per month: what you can add, every month, to what the debts already ask for. It can be zero: the plan still passes on to the next debt what each paid-off debt was taking.
• Each debt: the balance, the effective monthly rate with everything counted, the kind and the payment. A loan or a financing has a fixed instalment; a card's revolving balance has only a minimum, which can be less than the month's interest.
• The saved debts: if you have an account you can bring in the ones you saved in My debts, with the rate and the instalment of the contract. The ones that are still a plain loan come in; the ones with a grace period ahead stay out, with the reason given.

How the calculation works

In each month, the interest on a debt is the balance times the rate, rounded to the cent. Each debt is paid what it asks for, the instalment or the minimum, or whatever is needed to settle it. The rest of the money, which is the extra plus what the debts already paid off were taking, goes to the debt the strategy names: the highest rate in the avalanche, the smallest balance in the snowball. When a debt ends, what it was taking keeps being paid and moves on to the next one. That is all the two strategies do: the money is the same, what changes is where it lands. For a single debt, with a fixed or a falling instalment, the result is the amortization engine's with an extra payment, to the cent.

An example with numbers

Three debts: a revolving credit card balance of R$ 6,000.00 at 12% a month, with a minimum of R$ 900.00; a personal loan of R$ 2,000.00 at 1.5% a month, with an instalment of R$ 250.00; and a car financing of R$ 15,000.00 at 2.5% a month, with an instalment of R$ 838.69. Together they come to R$ 23,000.00, the instalments ask for R$ 1,988.69 a month, and there is R$ 500.00 more, which makes R$ 2,488.69.

The avalanche pays R$ 913.37 less interest than the snowball and ends a month sooner; against paying only the instalments, it saves R$ 5,810.20 in interest and ends 12 months sooner. The snowball, on the other hand, frees the first debt in month 3, and the avalanche in month 7. The page shows both, and does not say which to choose. Even with no extra at all, passing on to the next debt what each paid-off one was taking already shortens the plan to 18 months and R$ 10,916.27 of interest, R$ 1,149.01 less than the instalments alone. With R$ 1,500.00 more the two strategies both end in 8 months, and the difference between them falls to R$ 605.60.

The card in the example charges R$ 720.00 of interest in the first month, 12% of R$ 6,000.00. If the minimum were R$ 600.00, less than the interest, paying only the instalments would make the card grow without ever ending. With R$ 500.00 more, the avalanche ends in 15 months, with R$ 8,249.65 of interest, and the snowball in 15 months, with R$ 9,559.65.

Mistakes to avoid

• Using the nominal rate, or the contract's rate without the charges. The rate that counts is the effective monthly one with everything counted; the contract check page finds it from what the contract shows.
• Forgetting that the minimum of a revolving debt can be below the interest: the debt grows instead of falling, and no small extra changes that.
• Counting on an extra that does not exist every month. The plan assumes the same amount until the end.
• Putting all the leftover on the debts and keeping no reserve. An emergency reserve is outside this calculation; the pay off or invest page compares what money saves on a debt with what it earns.
• Ignoring the discount for paying early. A contract may cut the future interest, which the pay ahead page calculates and this plan does not.

What the page does not cover

The page does not model monthly charges inside an instalment (insurance, fees), late fees and late-payment interest, a rate that changes along the way, a discount for early settlement, or swapping several debts for a single loan. The law limits what revolving credit can charge in total, and the calculator does not apply that limit: it uses the rate you entered. The debts you type are not sent or kept: they stay on the page and go when it does. It is a calculation with the assumptions it states, not a recommendation.

Where to go next

The guide on the exit plan goes into the avalanche, the snowball and what changes when a card's minimum does not cover the interest, and the guide on the total effective cost explains the rate worth comparing. The methodology page describes how the calculations are made.