Debt Payoff Calculation Methodology & Mathematical Formulas

At My Debt Off, we believe financial tools should be 100% transparent. We do not use proprietary "black-box" heuristics or undisclosed assumptions. Every calculation performed in our browser engine is grounded in standardized consumer credit amortization mathematics.

Author: Donatus Richard (Personal Finance Writer) • Version: 2.4.0 • Updated: October 2026

1. Monthly Interest Compounding Formula

In accordance with Truth in Lending Act (TILA) disclosure conventions, credit card issuers compute periodic finance charges monthly using the nominal periodic rate:

r_monthly = APR / 12
Interest_m = Balance_m * r_monthly
Principal_m = Payment_m - Interest_m
Balance_{m+1} = max(0, Balance_m - Principal_m)

2. Credit Card Minimum Payment Models

Under the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, issuers establish minimum payment formulas designed to amortize principal over time:

Standard CARD Act Model: Min_Payment = max($25 to $35, (0.01 * Balance) + Interest_m)
Alternative Flat Rate Model: Min_Payment = max($25, 0.025 * Balance)

3. Canonical Verification Test Case ($10,000 Benchmark)

To ensure reproducible algorithmic accuracy across releases, our test suite benchmarks against a standard 3-account portfolio with $400/month committed budget:

  • Account 1: $1,500 balance at 11.0% APR (Min: $50)
  • Account 2: $3,500 balance at 22.0% APR (Min: $95)
  • Account 3: $5,000 balance at 24.0% APR (Min: $135)
  • Benchmark Results: Avalanche eliminates debt in 31 months with $2,286 in total interest. Snowball finishes in 32 months with $2,680 in total interest (a $394 difference). Declining minimums take 18+ years and incur over $13,420 in interest.

Algorithmic Changelog

  • v2.4.0 (October 2026): Added benchmark matrix documentation, explicit flat vs decaying minimum payment disclosures, and updated Federal Reserve G.19 reference rates (21.5% assessed card average).
  • v2.3.0 (August 2026): Enhanced 0% balance transfer breakeven equations with upfront fee amortization.
  • v2.0.0 (January 2026): Migrated calculation engine entirely to zero-knowledge client-side local execution.