How to Calculate Debt Payoff: Formula & Worked Example

What a debt payoff calculation tells you

A debt payoff calculation answers three questions: how long until the debt is gone, how much interest you will pay, and what the last payment is. The method is a month-by-month simulation: each month the interest is worked out on the current balance, the payment covers the interest first, and the rest cuts the principal. This guide does it in six steps, with one worked example throughout: a $10,000 balance at 22% APR, paid off at $300 a month.

Step 1: Add up the balances

If you have one debt, the balance is what you owe today — $10,000 in our example. With several debts, add them only if they share the same APR and the same payment; otherwise calculate each debt separately, or compare payoff orders with the snowball-versus-avalanche comparison. Do not add future interest to the balance — the interest is what the calculation works out, not what you start with. Use the statement balance, not the credit limit: the limit is what you could borrow, the balance is what you owe.

Step 2: Work out the monthly rate

The APR is an annual rate, so divide it by 12: 22% ÷ 12 = 1.8333% a month. On $10,000 the first month’s interest is $10,000 × 1.8333% = $183.33. The monthly rate is the single most important number in the calculation — it decides how much of each payment is eaten by interest before any principal is paid.

Step 3: Check the payment covers the interest

If the monthly payment is less than the monthly interest, the balance grows instead of shrinking and the debt never pays off. On our example the $300 payment beats the $183.33 interest by $116.67, so the debt falls. The boundary is exact: at 36.00% APR the monthly interest on $10,000 is $300.00, exactly the payment, so the debt never pays off. At 35.99% it still pays off, but it takes 278 months and $73,120.44 of interest. If your payment is only just above the interest — $183.34 a month here — the payoff takes 563 months and $93,163.55 of interest. The check takes ten seconds and it is the step most people skip.

Step 4: Apply the payoff-months formula

The closed-form answer is months = −ln(1 − balance × monthly rate ÷ payment) ÷ ln(1 + monthly rate). For our example: balance × monthly rate ÷ payment = $10,000 × 1.8333% ÷ $300 = 0.6111; 1 − 0.6111 = 0.3889; −ln(0.3889) = 0.9445; ln(1.018333) = 0.018167; 0.9445 ÷ 0.018167 = 51.99, which rounds up to 52 months. The formula gives the same answer as simulating month by month — the simulation is easier to follow, the formula is faster. The payoff is February 2031, counting from a first payment in November 2026.

Step 5: Total the interest

51 full payments of $300 plus a final payment of $296.10 gives $15,596.10 paid in total; minus the $10,000 balance gives $5,596.10 of interest. The last payment is $296.10, not $300, because the remaining balance in the final month is smaller than a full payment. The interest is more than half the debt again. Rounding convention: totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum.

Step 6: See what a bigger payment does

The payment is the lever that moves the answer most. At $500 a month the payoff takes 26 months and $2,571.43 of interest — half the time and $3,024.67 less interest than $300 a month. Work the calculation backwards to find the payment for a deadline: a 24-month payoff needs $518.79 a month (exact $518.78125), and one cent less — $518.78 — takes 25 months. A 36-month payoff needs $381.91 a month. If the payment you need is out of reach, move the deadline, not the arithmetic.

The worked example, start to finish

Our debt: $10,000, 22% APR, $300 a month. The monthly rate is 1.8333%, so the first month’s interest is $183.33 and the $300 payment cuts the principal by $116.67. The formula gives 52 months; the total paid is $15,596.10, the interest is $5,596.10, the last payment is $296.10, and the payoff date is February 2031, counting from a first payment in November 2026. At $500 a month the payoff would take 26 months and $2,571.43 of interest. Rounding convention: totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum.

What changes the answer most

Your payment moves the answer most: $200 a month takes 137 months and $17,356.03 of interest, $300 takes 52 months and $5,596.10, $500 takes 26 months and $2,571.43. Your APR is next: 15% takes 44 months and $3,017.07 of interest, 22% takes 52 months and $5,596.10, 29.99% takes 73 months and $11,756.66. Your balance is third: $5,000 takes 21 months and $1,021.61 of interest, $10,000 takes 52 months and $5,596.10, $15,000 takes 137 months and $26,034.34.

What the payoff leaves out

The payoff calculation leaves out fees, penalties and new charges — it assumes a fixed APR, equal monthly payments, and no new spending for the whole payoff. A late fee, a penalty rate, or a new charge all stretch the payoff past what the calculation says. With two or more debts, the order you pay them in changes the total interest, so compare the snowball and avalanche methods before you pick a payment. It also assumes you pay on time every month — a missed month adds a month and the interest on it.

How this connects

To run the numbers on your own debt, use the debt payoff calculator — it does the month-by-month simulation and the formula check for any balance, APR and payment. For two or more debts, use the debt snowball vs avalanche comparison. For a loan rather than a card, use the loan payoff calculator. This is a guide, not financial advice.