Braxton Taylor
Looking for a way to tackle your debt? Unsure of the best order in which to pay things? A free online tool called PowerPay.org might give you the direction that you need. PowerPay is a very basic debt payoff calculator that shows you the best way to pay off your debts to accomplish your goals. The simplicity is the great thing about it — no fancy bells or whistles to confuse you.
Before I dig into PowerPay, a reminder that you have access to free financial education and counseling through your installation’s personal financial manager and/or personal financial counselor, and also Military OneSource’s financial coaches.
You may also have someone in your command who has training in personal financial counseling. This job is usually called command financial specialist. If you try one of these resources, and the person isn’t a good fit, don’t give up on the programs. Just try another person.
So back to PowerPay! The website lets you enter your debt information and how much money you have to put toward repayment each month. Then it helps you figure out the most effective order in which to pay your debts by using the money you have. It shows both the “avalanche” method and the “snowball” method so you can compare which makes the most sense for you.
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In the avalanche method of paying off debt, you make the minimum payment on each debt except the one with the highest interest rate. You then take all extra debt repayment money and aggressively pay down that highest-interest-rate debt. Once that first debt is paid off, you transfer all that extra payment to the next-highest interest rate. The advantage of the avalanche method is that you pay the lowest total interest. The disadvantage is psychological: It can be more challenging to see progress if your highest-interest-rate debt is large, so you could get discouraged.
In the snowball method, by contrast, you prioritize debts from smallest to largest. After making the minimum payment on all debts, you then add extra funds to the smallest debt. Once that debt is paid off, you reallocate any extra money to the next-smallest debt. The advantage of the snowball method is that you can typically pay off your smallest debt pretty quickly, which provides a psychological boost to stick with the program. The disadvantage is if some of your debts have much higher interest rates, you’ll end up paying more overall.
So how to decide which method is best for you? PowerPay can help. You can play with different options, add additional payments and create a payment plan that feels most encouraging to you. You can absolutely do the same thing with a spreadsheet or paper and pencil, but PowerPay does the math for you and makes it simple — plus, sometimes it’s fun to use a specially designed tool for its job.
In addition to debt repayment calculators, PowerPay also offers a spending plan, a time value of money calculator, a housing costs calculator, a short-term savings calculator and an investment withdrawal calculator.
If you or your spouse are currently serving, take advantage of that paycheck to pay off debt and build a more solid financial future. Not only will this make life easier while you’re still in the military, but it will also set you up for a smoother transition to civilian life. And eventually, you’ll be in a better position when you decide to retire for good.
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