Payment after monthly interest
Each month, interest is calculated on the current balance and subtracted from the chosen payment; only the remainder reduces principal. The simulation continues until the balance reaches zero. It requires the payment to exceed the first month's interest, otherwise the debt cannot amortize.
The default payoff path
At $12,000 with an 8.5% annual rate, the first month's interest is $85. A $400 payment therefore reduces principal by about $315 at first. Keeping that payment fixed pays the modeled balance off in 34 months and accrues about $1,538.27 of interest.
What stays unchanged in the simulation
The payment is held unchanged throughout the simulation. The result assumes no new purchases, advances, fees, or rate changes are added to the balance. It also treats the due date as a regular monthly interval rather than accounting for daily interest.
The danger of a near-interest payment
Entering a payment that barely covers interest creates a misleading sense of progress. A $90 payment on this example exceeds initial interest by only about $5, so payoff would be extremely slow even though the number is technically sufficient.
Balances this model cannot follow
This is not a minimum-payment forecast for a credit card, because issuers can change the required payment as the balance changes. It also cannot reproduce a settlement, hardship plan, or a payoff quote that includes a date-specific per-diem charge.
Building a fixed payoff plan
Use the tool for a fixed-payment payoff plan and test a realistic higher payment before committing. A current statement is the right source for the balance, rate, due date, and any amount already scheduled to post.
A payment needs room above interest
The first-month interest on the default balance is about $85, so the $400 payment has a large principal component. If the rate rose or the payment fell, the gap would narrow quickly. Before setting an automatic payoff amount, test the payment against the current statement rate and leave room for a rate change or a balance adjustment rather than aiming exactly at the interest threshold.
Use the posted balance, not a remembered one
A scheduled autopay, recent purchase, or pending fee can make the statement balance stale. Replace the default with the balance and annual rate shown by the creditor on the day the payoff plan is set.
Loan tools
All loan calculators · Student Loan Calculator · Extra Payment Calculator
It is an educational estimate, not financial, tax, or legal advice.