1. What is Bankrate's Payoff Equation?

The Bankrate payoff equation estimates time to pay off credit card debt with extra payments, accounting for principal balance, monthly payments, extra payments, and interest rate. It provides a more accurate payoff timeline than simple division.

2. How Does the Calculator Work?

The calculator uses Bankrate's equation:

Where:

• \( P \) — Principal balance ($)
• \( D \) — Monthly payment ($)
• \( E \) — Extra payment ($)
• \( R \) — Monthly interest rate (APR / 12, as decimal)
• \( T \) — Time to payoff (months)

Explanation: The equation accounts for compound interest and the accelerating effect of extra payments on debt reduction.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce payoff time and total interest paid by decreasing the principal balance faster.

4. Using the Calculator

Tips: Enter principal balance, regular monthly payment, any extra payment amount, and APR. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How accurate is this calculator?
A: It provides a good estimate assuming fixed payments and interest rate. Actual payoff may vary if payments change or APR adjusts.

Q2: Why make extra payments?
A: Extra payments reduce principal faster, decreasing both payoff time and total interest paid over the life of the debt.

Q3: What's the best strategy for extra payments?
A: Consistent extra payments (even small amounts) are most effective. Consider applying windfalls (tax refunds, bonuses) to principal.

Q4: Does this work for other debts?
A: The formula applies to any fixed-rate debt, though credit cards typically have higher APRs making extra payments more impactful.

Q5: How does APR affect payoff time?
A: Higher APRs dramatically increase payoff time. Reducing APR (via balance transfer or negotiation) combined with extra payments is most effective.