Monthly interest
Interestₘ = opening balanceₘ × APR ÷ 12The entered APR is treated as a constant nominal annual rate and divided across months.
Debt Freedom · Methodology
How the calculation works
Illustrate how a fixed monthly repayment budget and the order of overpayments could affect several consumer-debt balances.
Return to calculatorIncluded
- Up to five debts
- A separate balance, APR and fixed monthly payment for each debt
- Avalanche and snowball ordering
- Recycling cleared payments into the remaining balances
- A minimum-only comparison
- A 50-year calculation boundary
Outside this method
- Priority-debt advice or insolvency assessment
- New borrowing and missed payments
- Promotional rates, default charges and lender-specific interest methods
- Changing contractual minimum-payment formulas
- A recommendation that one behavioural strategy is best
Calculation
Core formulas
Monthly budget
Budget = Σ entered monthly payments + extra paymentThe cash budget stays constant; payments released by a cleared balance are redirected.
Avalanche target
Target = highest APR among unpaid debtsA balance tie is broken using the smaller balance.
Snowball target
Target = smallest balance among unpaid debtsA balance tie is broken using the higher APR.
Timing convention
When cash flows occur
Interest is added monthly before the entered payments are applied. Every active debt receives up to its stated monthly payment, then the remaining monthly budget is directed by the selected ordering and cascades if a balance clears.
Limitations
What the result cannot establish
- APR divided by 12 may not reproduce a lender's daily interest calculation exactly.
- Real minimum payments can be percentage-based and change over time.
- The illustration assumes every payment is made on time and no balance is used again.
- The lowest-interest mathematical ordering may not be the easiest approach for a person to sustain.
Reference tests
Numerical checks
| Case | Inputs | Expected result |
|---|---|---|
| Zero-interest balance | £1,200 balance; 0% APR; £100 monthly payment | Debt clears in 12 months with £0 interest |
| Recycled payment | Two 0% £600 balances; £50 payment each; £50 extra | Total £150 monthly budget clears both balances in 8 months |
| Avalanche ordering | Equal balances; 10% and 20% APR | Additional payment targets the 20% APR debt first |
Evidence