The US economy has been confusing over the last few years, with unemployment rates, inflation, and interest rates bouncing all over the place. The latest news is that Americans' credit card balances collectively increased by $45 billion between the first and second quarters of 2023, according to the Federal Reserve Bank of New York, tipping past the $1 trillion mark for the first time. As I write this, Forbes Advisor's weekly credit card rate report puts the average interest rate at 24.72% (for the week of August 14, 2023). In other words, a whole lot of people are paying close to 25% on their share of the $1.03 trillion in US credit card debt.
If you carry credit card debt, it's tempting to pay the minimum each month and ignore the effects those high rates have on your personal finances. Who can face that reality while struggling just to make an on-time payment?
There is a better way, though, and I promise it's not nearly as confusing as understanding the US economy. The trick is to use a debt payoff calculator specifically from a free personal finance app. There are different kinds of calculators for different needs, and I'll explain some of the most useful ones—my favorites are from WalletHub and NerdWallet.
The reason you should use a calculator associated with a personal finance app is that these apps make money by showing you targeted ads for financial products. If you're in debt, there's a good chance that you could use a new and better financial product, such as a new credit card with a lower interest rate or a personal loan to pay off your debt. The best personal finance apps show you only accounts that you have a good chance of being approved for—some even give you a percentage to show how sure they are that you'll be approved.
Most important, using these calculators is free and can potentially save you thousands of dollars in interest.
Option 1: Use a Debt Payoff Calculator to Figure Out an Optimal Payment
There is a payoff calculator from WalletHub that is specifically for credit card debt—and you don't even need a WalletHub account to use it. It calculates the real cost of paying off your credit card based on the amount you can pay each month, as well as time, interest rate, and total debt.
To use it, first you select whether the credit card debt is existing or future debt (which you'd use if you're deciding whether to make charges in the first place). After that, the process is as follows:
- Enter the balance or amount you want to charge.
- Enter the interest rate (APR).
- Indicate if you have a special introductory rate for that account.
- Select whether you want to pay off the debt in a certain amount of time or with a fixed monthly payment.
The calculator then tells you what it will look like to pay off your debt—and more importantly, it has a table showing how much money you'd save if you increase the payments.
Debt payoff calculators quickly give you a realistic snapshot of what it will take to pay off your debt and the benefits of increasing your monthly payments if you can manage it. If you can't manage it, you might look at a balance transfer calculator instead.
Option 2: Use a Balance Transfer Calculator and Open a New Account
Another strategy for getting rid of credit card debt is to transfer it to a new credit card, usually because the new card offers some kind of introductory rate that's much lower than the APR you have now. You might even get a 0% introductory rate. However, the new account may charge you a fee for transferring the debt, so you need to take that amount into consideration, too.
A balance transfer calculator is what you need in this case. What I especially like about NerdWallet's balance transfer calculator is that on the same page there are tips on what to look for in a balance transfer card ("A good balance transfer credit card will have a 0% period of 15 months or longer") and related advice.
NerdWallet tells you what your total cost will be to transfer the debt and how much you'll save, but it assumes you'll pay off the debt during the period of the introductory rate. What if you can't make the suggested monthly payment, though?
WalletHub's balance transfer calculator has an additional field for entering the monthly payment you can afford. Using that number, it tells you how much you'll pay in total to get rid of your debt if you end up paying past the introductory period and start racking up interest again.
Beyond Credit Cards: Get Advice From a Total Debt Calculator
The examples above are about credit card debt alone. If you have other debt, such as medical or personal loans (including school loans), a better approach than tackling the credit card debt alone is to assess your total debt and get some advice about how to do it. NerdWallet's debt load calculator is pretty good here.
You enter not only your credit card debt but other money you owe, and then tell it how much money you earn annually. It doesn't do anything more than calculate your total debt as a percentage of your income, but based on that number, it recommends an overall approach you might use for managing your finances. Should you make monthly payments the best you can, go to a nonprofit credit counseling agency for help, or consider bankruptcy? If you're in way over your head and making monthly payments is unlikely to get you out of debt, it's better to know that sooner rather than later so you can make an informed decision about what to do.
For more personal finance app recommendations and online tools, see PCMag's personal finance page.