Reference
Debt payoff glossary
The terms below explain the language used by the calculator and guides. Definitions are educational and may not capture every lender, legal, or program-specific rule.
- Annual Percentage Rate (APR)
- A standardized annual rate used to describe the cost of borrowing. For the DebtSnowball.org calculator, enter the APR shown for the debt you are modeling.
- Amortization
- The process of reducing a balance over time through payments. A payment plan is non-amortizing when the balance does not fall because payments are too small relative to interest and other charges.
- Balance
- The amount currently owed on a debt. The calculator uses the balance you enter as the starting principal for its estimate.
- Balance transfer
- Moving debt from one credit card to another. Promotional APR periods, transfer fees, and later rates can materially change the cost.
- Debt Avalanche
- A payoff strategy that directs extra payment to the active debt with the highest APR while maintaining required minimums on the other debts. Under a fixed payment budget, it generally minimizes modeled interest.
- Debt Snowball
- A payoff strategy that directs extra payment to the smallest active balance while maintaining required minimums on the other debts. When one debt is paid off, its payment rolls to the next-smallest balance.
- Extra payment
- The amount paid each month above the required minimum payments. DebtSnowball.org adds this amount to the total monthly debt budget for Snowball and Avalanche comparisons.
- Minimum payment
- The required payment for an account during a billing period. Required amounts can change, so calculator results are estimates rather than lender statements.
- Principal
- The borrowed balance before future interest and fees. In an amortizing loan, part of each payment reduces principal.
- Secured debt
- Debt backed by collateral, such as many auto loans and mortgages. Failure to pay can put the collateral at risk, so secured-debt decisions can involve consequences beyond payoff order.
- Unsecured debt
- Debt that is not backed by specific collateral, such as many credit cards and personal loans.
- Debt-free date
- The estimated date when all balances in a modeled scenario reach zero. Real results can differ because of payment timing, fees, rate changes, minimum-payment changes, and future account activity.