How the Debt Audit Works

By Mike G.

The Debt Audit runs on fixed, published rules. This page lists every formula, threshold and assumption it uses, so you can check its work.

There’s no AI and no hidden scoring. The same numbers always produce the same result, and every explanation you see is written in advance and filled in with your figures. Everything runs in your browser, and nothing you enter is stored or sent.

What goes in

• Each debt: a name, a type (credit card, personal loan, medical bill, auto loan, student loan or other), the balance, the APR and the minimum monthly payment.
• Monthly take-home pay: pay after taxes and deductions.
• Monthly expenses, not counting the debts listed. Entered as one total or as categories that are added up.

Balances, payments and expenses can’t be negative, and take-home pay must be above zero. APRs outside the accepted range (see Assumptions) are rejected. Unusual entries, like a $0 minimum or a minimum larger than the balance, get a warning but don’t stop the audit.

The formulas

• Monthly surplus = take-home pay − expenses − total minimum payments
• Debt payment ratio = total minimum payments ÷ take-home pay
• Average APR = each debt’s APR weighted by its balance: the sum of (balance × APR) ÷ total balance
• Monthly interest on a debt = balance × APR ÷ 12
• “Won’t go down at the minimum” flag: shown when a debt’s minimum payment is no more than its monthly interest, so paying only the minimum never reduces the balance.

The debt payment ratio isn’t the debt-to-income ratio lenders use. That one divides all monthly debt payments, including housing, by gross income.^[1] The audit uses take-home pay because that’s the money payments actually come out of.

How the payoff plans are simulated

Both plans are worked out one month at a time, the same way a spreadsheet would:

1. Add a month of interest to every debt that still has a balance.
2. Pay every debt its minimum (or the rest of the balance, if that’s less).
3. Put everything left over, the monthly surplus plus the minimums of debts already paid off, toward the target debt. If that pays it off, the rest goes straight to the next target.
4. Repeat until every balance reaches zero, or until the longest period simulated runs out.

The two plans differ only in the order of targets:

• Snowball: smallest balance first. Ties go to the higher APR.
• Avalanche: highest APR first. Ties go to the smaller balance.

The order is set from the balances you enter and doesn’t change as the plan runs. Each plan reports the months until the last debt is paid off, the total interest, and the order debts are cleared in.

Minimums only is the comparison line on the chart and the “interest at minimums only” figure. Each debt gets exactly its own minimum and nothing more, and nothing rolls over when a debt is paid off.

The what-if slider adds an extra amount on top of the surplus each month and reruns both plans. It never changes the grade or the verdict, which always use your numbers as entered.

How the consolidation estimate works

When the verdict points to consolidation, the audit estimates what a consolidation loan might save:

1. Take the debts a consolidation loan would typically pay off (listed in Assumptions) and add them up.
2. Add the assumed origination fee to that amount to get the new loan’s balance.
3. Replace those debts with one loan at the assumed rate, keeping the same monthly payments, and rerun the avalanche plan.
4. Savings = the interest on your current plan − (the interest on the consolidated plan + the fee).

If that comes out at zero or less, the audit doesn’t point to consolidation. The assumed rate is a typical figure, not a quote. Real offers depend on your credit, income and the lender, and many people won’t qualify for a rate low enough to save money.

Why these thresholds

There’s no official rule for how much of your take-home pay should go to debt, so some of these lines are our own judgment. Here’s where each one comes from, and which are ours.

• The Manageable line. A Consumer Financial Protection Bureau worksheet suggests renters keep debt payments, not counting rent, to about 15–20% of gross income.^[2] The audit’s line sits at the top of that range but measures against take-home pay, which is smaller. The same debt therefore reads a little higher here, making the audit slightly stricter than that guideline. For comparison, the average U.S. household spends only a single-digit share of after-tax income on non-mortgage debt payments.^[3]
• The Underwater line and the “thin surplus” cushion are our own judgment, not an official benchmark. Beyond the Underwater line, minimum payments take so much of each paycheck that one surprise expense can mean missed payments.
• The pay-it-yourself window. Credit card statements must show both how long paying only the minimum would take and the monthly payment that would clear the balance in 36 months.^[4] The audit uses the same 36-month mark as the point where a do-it-yourself plan is usually realistic.
• The five-year mark. Five years is also the longest a Chapter 13 bankruptcy repayment plan can run.^[5] Plans longer than that are the ones most likely to stall, which is when outside help such as a nonprofit debt management plan is worth a look.^[6][7]
• The consolidation rate. The assumed rate is set near the average that commercial banks report for 24-month personal loans in the Federal Reserve’s consumer credit release. That average is well below typical credit card rates, and we revisit the assumption when it moves.^[8] Lenders often charge an origination fee.^[9] The fee percentage used here is our own conservative assumption, included so the savings estimate isn’t overstated. Borrowers whose credit has been hurt by debt usually won’t be offered the lowest rates.^[10]
• The average APR needed for consolidation. Below that level, the gap between your current rates and a typical consolidation loan is usually too small to outweigh the fee. The audit also won’t point to consolidation unless its own estimate shows a saving.
• The bankruptcy note’s thresholds are our own judgment. The note appears only when unsecured debt is large relative to a year’s pay, and it points to our guide to understanding bankruptcy, not to a lawyer or a company. Student loans aren’t counted as unsecured debt for this note, because they can only be discharged in bankruptcy by proving “undue hardship.”^[11][12]

What the audit can’t account for

• Minimum payments are held fixed. Credit card minimums usually shrink as the balance falls, which makes paying only the minimum take even longer than shown. The minimums-only figures are optimistic.
• Interest is calculated monthly. Most card issuers charge interest daily, so real totals can differ slightly.
• Rates are treated as fixed. Variable rates, promotional 0% periods ending, penalty APRs, late fees and annual fees aren’t included.
• Your budget is treated as steady. The plans assume the same income, expenses and surplus every month.
• It doesn’t see your credit, assets or legal situation. Whether you’d qualify for a loan, what a creditor would accept, or how bankruptcy would apply to you are questions for a lender, a nonprofit credit counselor or an attorney.

When these rules change

All of the thresholds live in one configuration file, and this page is built from the same file. It can’t show a number the audit isn’t actually using. If a rule changes, this page changes with it. Questions about the method, or a mistake you’ve spotted, are welcome through the contact page.

Sources