Understanding your debt picture
Most people with multiple debts have no single view of what they owe, what it is costing them, and when they will be free. A mortgage, two credit cards, a car loan, and a student loan each arrive as separate statements with different rates, different minimums, and different payoff dates. Without combining them, it is impossible to make rational decisions about where to put extra money or whether consolidation makes sense.
The three numbers that matter most are: total balance (how deep you are), weighted average rate (what the debt collectively costs per year as a percentage), and monthly cash obligation (what you must pay just to stay current). Everything else flows from these three.
Weighted average interest rate
Weighted average rate = ∑(balance_i × rate_i) ÷ total balance
Total interest (minimum payments, single debt) = iterative amortisation
Avalanche extra allocation: free pool → highest rate first
Snowball extra allocation: free pool → lowest balance first
Health score = 100 − penalty(avg rate) − penalty(total interest ratio) − penalty(payoff horizon)
The weighted average rate tells you what 1 dollar of your total debt costs per year on average. It is the correct benchmark for evaluating consolidation offers: any consolidation rate below your weighted average saves money.
Avalanche vs snowball: the numbers
| Scenario | Total debt | Avalanche interest | Snowball interest | Avalanche saves | Months difference |
|---|
| 3 cards, wide rate spread | $18,000 | $4,200 | $5,100 | $900 | 3 months |
| 4 debts, mixed types | $45,000 | $11,800 | $13,200 | $1,400 | 4 months |
| Similar rates across all | $25,000 | $6,100 | $6,180 | $80 | <1 month |
| One high-rate outlier | $30,000 | $7,900 | $10,400 | $2,500 | 8 months |
The impact of extra monthly payments
Adding even a small extra amount each month — $50, $100, $200 — to the highest-rate debt produces disproportionate savings because it reduces the balance on which the highest interest accrues, freeing up the freed minimum payment to roll to the next debt once the first is cleared. This debt avalanche effect means the extra payment becomes more powerful over time, not less. The dashboard shows exactly how many months and how much interest your specific extra budget amount saves, making the decision concrete.
Worked examples
Example: Four debts, $300 extra per month
Suppose you have: a $12,000 credit card at 22.9% (min $300), an $8,000 personal loan at 14% (min $190), a $5,000 car loan at 6% (min $120), and a $2,000 store card at 29.9% (min $60). Total debt: $27,000. Weighted average rate: (12000×22.9 + 8000×14 + 5000×6 + 2000×29.9) ÷ 27000 = 17.3%. Total minimum monthly: $670.
Avalanche order: store card 29.9% first, then credit card 22.9%, personal loan 14%, car loan 6%. With $300 extra ($970/month total), the store card clears in month 3. The freed $60 rolls forward, clearing the credit card by month 18. Total interest: approximately $10,800.
Snowball order: store card $2,000 first (same as avalanche here due to it also being smallest), then car loan $5,000, then personal loan $8,000, credit card $12,000. Total interest: approximately $11,600. Avalanche saves approximately $800 in this scenario. Both strategies produce a debt-free date around the same month because the smallest and highest-rate debt happen to coincide.
| Debt | Balance | Rate | Min. | Avalanche order | Snowball order | Est. payoff (avalanche) |
|---|
| Store card | $2,000 | 29.9% | $60 | 1st | 1st | Month 3 |
| Credit card | $12,000 | 22.9% | $300 | 2nd | 4th | Month 18 |
| Personal loan | $8,000 | 14.0% | $190 | 3rd | 3rd | Month 26 |
| Car loan | $5,000 | 6.0% | $120 | 4th | 2nd | Month 31 |
Frequently Asked Questions
What is the weighted average interest rate and why does it matter?+
The weighted average interest rate is the single rate that represents what your entire debt portfolio costs per year. It is calculated by multiplying each debt's balance by its rate, summing those products, and dividing by the total balance. For example, $10,000 at 20% and $10,000 at 10% produces a weighted average of 15%, not 20% or 10%. This figure is critical because it is the correct benchmark for evaluating consolidation offers. Any single consolidation loan offered at a rate below your weighted average will reduce your total interest cost. Using the highest individual rate or a simple average instead of the weighted average can lead to incorrect consolidation decisions.
How does the debt health score work?+
The health score is a composite indicator built from three factors: your weighted average interest rate (lower is better), the ratio of total projected interest to total principal (lower is better), and your estimated payoff horizon in months (shorter is better). Each factor contributes a penalty to a starting score of 100. A weighted average below 5% costs minimal penalty, while rates above 20% apply a heavy penalty. A debt portfolio where projected interest exceeds 50% of principal scores poorly on the second factor. A payoff horizon over 10 years also incurs penalty. The score is designed to give you a quick intuitive read on debt severity, not to replace professional financial advice.
Is avalanche always better than snowball?+
Mathematically, avalanche always produces equal or lower total interest compared to snowball. The only exception is when all your debts have identical interest rates, in which case both methods produce identical results. In practice, snowball wins on adherence. Research in behavioural economics suggests that people who see quick progress by eliminating small balances entirely are more likely to stay committed to a debt repayment plan. An imperfect plan you follow is better than an optimal plan you abandon. This dashboard shows both strategies side by side so you can see how much more avalanche saves, and decide whether that difference is worth choosing it over snowball's motivational advantages.
What happens to the freed minimum payment when a debt is cleared?+
When a debt is fully paid off, the minimum payment you were making on it is freed up. Both the avalanche and snowball simulations in this dashboard automatically roll that freed payment forward to the next target debt in addition to the regular extra budget. This is the core mechanic that makes structured payoff strategies so effective. If you were paying $60 minimum on a credit card that you just cleared, that $60 now joins your extra budget applied to the next target. This compounding of freed minimums means your effective extra payment grows over time as each debt is eliminated.
Should I prioritise paying off debt or saving?+
The standard financial guidance is: prioritise any debt with a rate above the risk-free savings rate (typically 4% to 5% in current conditions). If your credit card charges 22% and your savings account pays 4.5%, paying down the credit card is equivalent to earning a guaranteed 22% return. No savings or investment vehicle routinely beats guaranteed debt elimination at high rates. Exception: always maintain a basic emergency fund of one to three months of expenses even while paying debt, because lack of emergency savings often leads to accumulating more high-rate debt when unexpected costs arise. Once all high-rate debt is cleared, the trade-off between investing and paying down low-rate debt (mortgage, student loans) depends on your expected investment return and risk tolerance.
How do I use this dashboard to decide on debt consolidation?+
Look at your weighted average interest rate from the dashboard KPI. If a consolidation loan is offered at a rate meaningfully below this figure and the loan term does not extend your payoff horizon significantly, consolidation will save money. For example, if your weighted average is 18% and you are offered a personal loan at 11%, consolidating saves roughly 7 percentage points of interest per year on the consolidated balance. Use the Debt Consolidation Calculator to model the specific numbers. Be cautious about consolidating short-term, high-rate balances into long-term loans: a lower rate on a 7-year loan can still cost more total interest than a higher rate on a 2-year repayment plan.