But that’s just part of the answer.  The other part is to determine what the ratio of principal to interest is in each of those combinations for paying down debts… both before AND after the payment is made.  Computing the existing ratios before applying discretionary income towards an extra principal payment shows the relative cost of interest for each debt combination, to be compared between debts, allowing the determination of which is the most “expensive” snapshot-in-time debt permutation.  Computing what the ratios would be after applying discretionary income towards an extra principal payment reflects the effect (the impact) of applying the discretionary income for each particular permutation. Then, doing more math, the difference between each before-and-after combination reveals the savings impact of applying the $100 to the various permutations.  So, for any given month, given the snapshot in time, the single permutation that provides the largest impact with the most savings would be the correct choice for that month.

When you have compound interest debts with an amortization schedule (like student loans, car loans, a mortgage, etc) your ratios change every month with every payment, so the factorial computations need to be run again for each payment combination of your debts to determine 1) not only the effect the payment will have on the resulting ratio, but 2) if the $100 of discretionary income is divided among more than one debt, what the optimal portion would be to apply to each of the debts to have the biggest impact on the before & after ratios of interest to the total payment towards each debt.  Now we’re out of the algebra arena and squarely into calculus.

It gets a bit more complicated when there’s a simple interest debt with a minimum payment that is variable based on the principal balance… such as with credit cards.  With credit cards, as your balance decreases, so does your monthly minimum required payment (down to some floor, usually $25 or $35).  This means that the ratio of interest to your total minimum required payment remains constant for those types of debts, ensuring the bank maintains a consistent profit margin on your minimum payment.

So the software takes into account the types of debts, individual terms, ratios, and grace periods of your debts, as well as the impact on your overall debt balance based on the ratios resulting from those terms.  And because the combination of individual ratios changes from debt to debt (aside from simple interest debts like credit cards and lines of credit) for each minimum payment, the entire series of factorial permutations needs to be calculated for EACH SUCCESSIVE MONTH all the way through the date when the debts will be paid off.

It’s important to realize that the program is not just looking at your current month’s payments.  It starts with your “snapshot in time” current financial picture, then calculates what the resulting picture looks like from this month’s optimal payments, then using those balances and payment terms, it computes the optimal ratios for the following month and computes those payments, followed by the next month, and the next and the next, until it reaches a debt balance of zero.  If your picture changes at all, for any reason (pay raise, unexpected bill, expenses higher or lower than budgeted, etc), the program updates your “snapshot in time”, then recalculates everything all over again to give you absolute mathematical truth on your payoff date, interest remaining, scheduled strategic payments, interest accrual, interest cancellation, and so on.   It does it real-time, 24/7, on-the-fly.

There is no way to do all of that by hand, or even with a spreadsheet.  Spreadsheets, though helpful in crunching numbers via pre-programmed formulas, do not have the algorithm-based decision capability of the software we use.  An algorithm is a piece of “if/then” decision-making code that integrates logic to accomplish a process.  It prioritizes options to arrive at the best choice given a given set of parameters and conditions.  Our program uses thousands of algorithms in its decision tree to arrive at the best outcome for the fastest results with the biggest savings.  It handles all of the variables in context with the complete picture, simultaneously.

At various points throughout the payoff process, the optimal debt (or debts) to pay the $100 (in our illustrative example) towards will change.  The software can project the payments months down the road as it does its calculations, and it knows when a particular debt is the optimal option one month, but a different debt (or debts) becomes the optimal option the following month.  And at some point, one of the six debts will be paid-in-full, changing the factorial product from 720 options (meaning “6x5x4x3x2x1”) to become five debts (“5x4x3x2x1”), or 120 permutations.  In other words, as debts are paid off, the same $100 discretionary income can take a bigger bite out of principal for the remaining debts based on the ratios that exist at that point in time.

• It’s not the “Debt Snowball” approach that only looks at the single, lowest balance to attack.
• It’s not the “Debt Avalanche” approach that only looks at the single, highest raw interest rate to attack.
• Instead, it looks at and attacks the highest “debt cost combination”, taking into account the strategies of interest float, interest accumulation, and interest cancellation of all of your debts in real-time context with each other.

Debt payoff programs that use the snowball or avalanche approaches are better than doing nothing… but they are far too simplistic to achieve the results you get from using an algorithm-based program.  In other words, if all you have are a pen, paper, and calculator… Debt Snowball or Debt Avalanche might be the best you can do.  But technology has outdated the “pen & paper” concept.

Let the computer do the “heavy lifting” work for you.  The program calculates the best, right answer.  Then, just follow its instructions.

Since you tell it your budgeted income and expenses, it knows what the banks require and what you need to put aside to live on (including quality-of-life comfort expenses).  Since you tell it the payment due dates and statement dates, it knows the bank’s grace periods (interest float) and compounding periods (interest accrual).  It also knows the ratios of principal and interest in each payment and the amortization schedules of each loan.  It knows which debts are simple versus compound interest.  And it knows how much money you have left over (your discretionary income) after all of the above are taken into consideration.  The program sees your entire financial picture– into the future based on your current circumstances.

What do you see when you’re using the program?  Simple.  You see a continually updated action plan that shows you what do to on what date, in what amount, from what account to what account.  Just do what it tells you.  Pay the bill or make the transfer.  Just follow the instructions, and the program will get you to zero debt the fastest way possible.  If you decide to override what it tells you, that’s fine.  It simply adjusts your future plan accordingly, working within the boundaries you give it.

As you can see, it’s a whole TON of math to be done, and completely not a plausible option to compute by hand.  Let’s suppose we’re in a situation where the software takes a 28 year debt portfolio and calculate a time savings down to 8.2 years.   You would have to compute 8.2 years x 12 months of payments x 720 permutations x 2 for the before & after pictures of each ratio (not including the calculus derivatives and differences between ratios).  In other words, you’d be running at least 141,696 individual calculations to come up with a similar (but still not optimized) action plan compared to what the software produces.   And as soon as “LIFE” happens… the unexpected bill or the unexpected income, all of that work would need to be thrown out, and you’d have to start over with the newly revised income or expenses, because every single future payment combination in the action plan is dependent upon your RIGHT NOW snapshot-in-time financial picture.

That’s the beauty of the program…  it recalculates it all on-the-fly as changes happen, sort of like how if you miss a turn or take a detour while driving with a GPS, the GPS auto-adjusts the route to get you back on track to your destination the fastest way possible.

The software also takes into account the ways different types of debt behave… The algorithms determine payments in the action plan based on weighing one debt against the others and prioritizing them based on the terms of the debts, while SIMULTANEOUSLY taking into consideration how much interest you can float (using the bank’s money at zero percent) and how much interest you can accrue (using your savings account resources to create a portion of principal to add to your discretionary payments).   Further, it knows your monthly budget, so if you have $100 of discretionary income each month and your electric bill comes in under-budget by $20, it knows it now has $120 of discretionary income to apply to the action plan and recalculates everything accordingly.   It works the same way that the banking system uses algorithms to maximize their profits by holding onto every penny until the last minute before transferring funds, so it maximizes the time-value of money.

Let’s look at a practical example of algorithms used in creating a strategic payment plan.  Not every mortgage requires Private Mortgage Insurance (PMI).  Some do.  Once you’ve committed to paying PMI, you’ll usually have to keep it for at least two years. If your home has appreciated enough to give you 25% equity after two to five years, you can cancel the coverage. After five years, you just need 20% equity to discontinue PMI.  Let’s assume you have a mortgage payment that includes $150 in PMI each month.

Two years into your mortgage, you would have paid $3,600 of PMI.  Like interest payments, you have nothing to show for PMI payments.  It’s money just given away.  Over five years, your PMI payments would amount to $9,000.  The difference: $5,400 if you can get to the point of eliminating PMI by the two year point rather than the five year point.  So, as you can see, PMI impacts the effective “cost” of your mortgage loan.

Again, PMI is situational and conditional… not everyone has to pay it.  If you do have to pay it, the software’s algorithms factor the PMI into the cost of your overall debt when computing the fastest path to zero.  The faster you can eliminate PMI, the faster you can free up that money to attack your other debts, rather than giving it away.  So the program not only prioritizes paying down debts, but also freeing up resources to accelerate paying down debts.  PMI is just one example of an algorithm-based consideration.

So when we say that other programs like Debt Snowball “leave money on the table”, that’s what we mean.  If you focus on just the smallest debts first and it takes more than 5 years to pay off credit cards; vehicle loans; student loans and other debts before working on paying down your mortgage, in this case you’d be leaving at least $5,400 on the table.  That’s not even addressing or including the cost of interest that would be cancelled off of your mortgage in the process of eliminating PMI payments.  Our algorithm-based program considers all of it.

There is no “free app”, YouTube video, book, course, or otherwise to substitute for our program.  Nothing remotely comes close.  Even if you are a genius, there aren’t enough hours in a day to compute it by hand.  Think about it this way:  If it took you just two minutes to compute the before-and-after ratios for each of the 720 combinations (assuming six debts), that would be 1440 minutes.  Divided by 60 minutes per hour, that’s 24 solid hours of no eating, no sleeping, no bathroom breaks… Just math.  Hopefully the picture is becoming clear.

Don’t forget… for each of the 720 permutations, there are actually several calculations required… the “before” ratio of principal to interest, the “after” ratio of principal to interest, the difference of each, and the calculus to determine the optimal distribution of discretionary income beneath the curve to arrive at the highest savings per combination.  Just a guess… even if you were Einstein, it would take you more than two minutes per permutation…

(Remember back to the days high school math class, thinking “When am I ever going to use this stuff?”   Well, here we are.  Now you know.)

You can see that it does much more than tell you to pay extra towards principal each month, as many people mistakenly think when they first look at the program.  Many people just assume that the software simply figures out which debt is the most costly and tells you to pay extra towards the principal for that debt.   If it were as simple as that, then yes, you could figure that out by hand.  But as you’ve seen above, that’s not what the software does.  It’s much more involved.  And when you have a 30 year mortgage (360 months of payments for monthly or 780 payments for bi-weekly), plus car payments, plus credit cards, plus student loans… the seemingly small impact of each algorithmic payment decision has a HUGE cumulative and compounding impact over time.

And…  you remain in control.   If you decide to ignore a suggestion, you can tell the software to skip or adjust the payment on your action plan, and the software will recompute the action plan based on your inputs.  It doesn’t force you to live an austere lifestyle.   Instead, due to the interest float and accrual strategies, it supports your current lifestyle by working with your current spending trends and habits.

1. The only requirements that the software has, in order to work, is that 1) you have to overall spend less than your income each month…   and as little as $1 less will allow it to work, and 2) you have to have both a checking and savings account.  But if you want to get out of debt, it’s a given that you absolutely MUST spend less than your income…  There’s no other way to make progress otherwise… with ANY program.   It’s simply math, not magic.   The software simply creates your action plan based on your existing situation.   If you are using the program and spend more than you earn, it will tell you the exact date that you will run out of money after depleting all of your financial resources…   So it has 20/20 vision, looking forward at your financial future.
2. If you have money you want to set aside, you don’t have to use it.  Let’s say you have a savings of $50,000, you can tell the software what you want to do with it.  You can tell it to set a portion (or all) of it aside as an emergency fund.   You can tell it you’re taking a vacation to Tahiti with $10,000 of it, and that you want to keep an emergency fund of $20,000.  The program does not require you to deplete your resources or change your lifestyle.  It won’t make you eat “beans and rice” or spaghetti every day on the brink of starvation.  You can still have your morning latte.  Relax!  Whatever you tell it you’re willing to do, the software will look at whatever it has remaining (that it’s allowed to use), and it will apply it to your action plan in the most effective combination to get you debt-free the fastest way possible.

And as complex as it is with calculating all of the math, it is so simple to use.  It only takes about 10-15 minutes of time per month to keep it updated.  And it very clearly tells you exactly what to pay, when to pay it, how much, and to/from which account.  All you have to do is follow instructions.  There’s no thinking, no stress, no emotional involvement, and no doubt.  Just do it, and the program gets you out of debt in the shortest possible time!