See what your debt costs over time

Key points

• Repayments are easy to know and balances are close enough to guess. What the whole set costs to carry each month, in interest and fees, is the figure most people don't have.
• Two numbers do most of the work: what your debts cost this month, and how much of what you paid actually came off the balances.
• The method is one line per debt. Balance times the annual rate divided by 12, plus any fees, then subtract the total from what you paid.
• On an illustrative set (a $4,000 credit card at 20.99%, a $9,000 personal loan at 13.2% and $600 of buy now pay later), $520 of repayments cost ~$197 to carry and took ~$323 off the balances.
• You don't need exact rates and fees to get a useful answer. Estimate the ones you're unsure of, mark the assumptions, and revisit the figure later.

You probably know your repayments exactly. They come out on set days, they show up in your account, and you could probably recite most of them. The specific balances you could probably recall within a few hundred dollars. What almost nobody can answer is what the whole set costs to carry each month once interest and fees are counted, and that's the figure that tells you whether your current path is working.

It's a smaller job than it sounds, and you don't have to decide anything once you've done it. So here we go through the numbers worth having, how to work them out from your own statements, and what they do and don't tell you once you have them.

The three numbers worth having

The first is what your debts cost you this month: all the interest, plus all the fees, across every balance you're carrying. The second is how much of this month's repayments reduced what you owe. Roughly how long the current pattern takes to finish is the third, and it falls out of the other two.

The first two are worth more together than either is on its own. A cost figure by itself tells you the debt is expensive without telling you whether you're beating it. The repayment total on its own is the easiest one to misread, because $520 of repayments feels like $520 of progress regardless of where the money went, and on a bank statement it looks identical either way. Put the two side by side and you can see what share of your repayments reached the balances rather than covering the cost of carrying them. Where one credit card balance in particular won't move despite regular payments, working out why has its own diagnosis and it runs on a single statement.

Working it out by hand

You'll want the most recent statement for each debt – or your provider's app, which usually carries the same figures.

For each one, start with the balance and the annual rate. Divide the rate by 12 and multiply that by the balance, and you have a rough monthly interest figure. It's rough because most credit providers calculate interest daily rather than monthly (the day-to-day mechanics of that have their own explainer), so this gets you close rather than to the cent. Then add the fees. A monthly account fee goes straight in, and an annual fee gets divided by 12 first. That total is what the debt costs you this month. Do the same for every balance and add them up.

Then take what you paid across all of them this month and subtract that total. What's left is what came off the balances.

Below is an example set of three debts. The figures are illustrative, the rates are examples rather than offers, and it assumes nothing new went onto any of the balances during the month.

So ~$197 of the $520 covered the cost of carrying the debt, and ~$323 came off what's owed. That's about 62 cents in every dollar reaching the balances.

The third number is a division. Total balances of $13,600 divided by $323 a month is about 42 months, so 3 and a half years at this pattern. It's rough in both directions. If you hold the total at $520 and put each cleared repayment onto whatever's left it finishes sooner than that, and if the freed-up money goes into ordinary spending instead it takes longer. Treat it as a marker rather than a payoff date.

Doing all of it by hand takes perhaps half an hour with the statements in front of you, and it's worth doing at least once, because the figures you get are yours rather than an average.

Where the estimate gets rough, and that's fine

Some of the inputs won't be exact, and a few of them you may not have at all. The rate on a credit card you've had for years might not be one you can recall, and the statement that carries it may not be somewhere you can get to right now. Fees are harder again, because annual fees, late fees and international transaction charges land at different times, so any single month can look cheaper or dearer than a typical one. Rates move too, so a figure worked out in January describes January.

If you're not sure what a credit card repayment will come to, the minimum is the floor. It's the greatest of $25, 2% of the closing balance rounded down to the nearest dollar, and any amount by which that balance sits above your credit limit (your credit card's contract sets its own terms and a provider can require more). What paying only the minimum does to a timeline has its own place to be worked through properly.

None of that is a reason to wait for better numbers.

A rough figure you work out today is more use than an exact one you never get to.

Mark the assumptions as you go. If you guessed a rate at 20%, write "assumed 20%" next to it, and do the same where you've spread an annual fee across 12 months. Then when you come back in 3 months and the figure has moved, you'll know whether the debt changed or your guess did.

Pro tip: Connecting your accounts in WeMoney puts each balance, its repayments and the interest charged in one place, so fewer of these figures are ones you have to dig out of a statement.

What does the number tell you?

Whether your repayments are outpacing what the debt costs you (it doesn't tell you what to do about it, which depends on the rates, the terms and what else the money is needed for). It's also a reading on what you're carrying right now, not on what you own overall, and not on what a different loan would cost you.

Where your repayments comfortably exceed the monthly cost, the current path is working and the only open question is speed. If they only just exceed it, the balances are moving so slowly that the path is worth changing, and every extra dollar you can find goes entirely onto what you owe rather than the cost of carrying it. However, it's worth keeping a small buffer alongside the repayments so the next repair doesn't land straight back on a credit card. And if your repayments don't exceed the monthly cost at all, the balances are growing while you pay, which is the case for talking to your providers early. Their hardship teams and the National Debt Helpline on 1800 007 007 are there for exactly that, before the balances compound further.

Where several expensive balances are involved, each with its own rate and its own due date, the question stops being about any one of them. Whether reorganising them into a single repayment would cost or save you has its own place to be worked through properly, using the same figures you've just put together.

You can run this by hand as often as you like, and it needs nothing but your statements. Once your accounts are connected in WeMoney, the balances and repayments sit side by side and update as they change, so what you've just calculated becomes an ongoing view rather than something you rebuild from statements every time you want to check. What you do with the figure is still your decision, and it's now built on numbers you worked out yourself.

Sources

• Moneysmart: Credit card calculator
• Moneysmart: Get debt under control

This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.