Debt
Glossary
Every term used in this calculator, defined plainly.
- APR (Annual Percentage Rate)
- The annual interest rate on a debt, including fees. Divide by 12 to get the monthly rate applied to your balance.→ Used in the calculator: Used in the "APR" field for each debt
- Minimum Payment
- The lowest payment a lender requires each month. Usually calculated as a percentage of the balance (often 1-2%) or a fixed dollar amount, whichever is higher. Paying only minimums can extend payoff by decades.→ Used in the calculator: The "Min payment" field for each debt
- Debt Avalanche
- A payoff strategy: pay minimums on all debts, put every extra dollar toward the highest-interest debt. Mathematically optimal — always minimizes total interest paid.
- Debt Snowball
- A payoff strategy: pay minimums on all debts, put every extra dollar toward the smallest balance. Creates quick wins that motivate continued payoff — psychologically effective but mathematically suboptimal.
- Debt-to-Income Ratio (DTI)
- Your total monthly debt payments divided by gross monthly income. Lenders use this to evaluate loan applications. Under 36% is generally considered healthy; above 43% limits mortgage options.
- Interest Capitalization
- When unpaid interest is added to the principal balance, and future interest is charged on that larger amount. Common with student loans in deferment and some credit cards.
Ready to calculate?
Put these terms to work in the calculator.