How to Calculate Amortized Debt

Amortized debt is the sum total of a loan plus interest, spread out over equal payments for a certain length of time. Although amortized debt reduces the overall debt and interest owed by installments, there is often a large amount of interest to be paid over the long term. In some cases, the borrower pays more in interest than the actual debt is worth. Knowing how to calculate your amortized debt will help you to see how much interest you are paying, and that might lead you to make larger payments now to reduce the interest paid over the long run.

Instructions

Calculate Amortized Debt

1

Collect your documents and know your terms. You will need to have a figure for how much you have borrowed, which will be your principal when you plug the figure into the amortization calculator. Your annual percentage rate, or APR, will be divided by payments per year. So if the payments are monthly, then you will have twelve payments per year. The APR will be part of the loan terms that should be on the loan information.

2

Calculate or have on hand the other components needed to calculate amortized debt. The number of regular payments means the total number of payments over the course of the loan. The payment amount is flexible, but it must meet the minimum payment amount. A balloon payment is included in some loans, requiring a lump sum to be paid at the end of the loan. The cost of the balloon payment affects the amortization of the loan. Calculators that include the cost of the balloon payment will also figure in one month's interest for the balloon payment itself.

3

Find a free amortized loan calculator on the Internet. Some include options for balloon payments (http://www.bretwhissel.net/amortization/amortize.html) or for making extra payments according to a variety of factors (http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx).

4

Insert the numbers for the principal, loan term, interest rate, monthly payments and start date. Play around with some of the variable numbers, such as making extra payments to see how much that would save you in the long run.

5

Write down the best payment plan for you, especially if it includes making an extra payment or two per year.