What Is the Cost of Your Debt? Free Interactive Calculator
Most people know they have debt. Very few people know what that debt is actually costing them. Not just the monthly minimum payment — but the real annual cost in interest across every debt they carry. That number is almost always bigger than people expect.
Use our free interactive Cost of Debt Calculator below to enter each of your debts, see exactly what each one costs you in interest every year, and find your weighted average interest rate across all your debt combined. No download required — results update instantly.
📈 Weighted Cost of Debt Calculator
Enter each debt below — annual interest cost and weighted rate update instantly
| Debt name | Balance ($) | Interest rate (%) | Min. payment ($) | Annual interest cost |
|---|---|---|---|---|
| $1,560 | ||||
| $1,350 | ||||
| $1,375 | ||||
| $0 | ||||
| $0 | ||||
| Totals | 10.8% | $805/mo | $4,285/yr | |
Your debt is costing you approximately $4,285 per year in interest — money that builds zero wealth and goes entirely to lenders. At a weighted average rate of 10.8%, paying down your highest-rate debt first is your fastest path to financial freedom and mortgage readiness.
Want to know how your debt affects your mortgage qualification? Kirk or Ken will run the numbers for you — free.
Talk to Kirk or Ken →What Is a Weighted Average Interest Rate — and Why Does It Matter?
Your weighted average interest rate is your blended cost of debt across all the money you owe. It is not a simple average of all your interest rates — it weights each rate by the balance it applies to, giving you a true picture of what your overall debt portfolio is costing you.
The Formula — Simple to Understand, Powerful to Know
Weighted Average Rate = (Balance A × Rate A + Balance B × Rate B + ...) ÷ Total Balance
For example: $6,500 at 24% + $18,000 at 7.5% + $25,000 at 5.5% = $4,285 annual interest on $49,500 in debt. That is a weighted average rate of 8.7%. Knowing this number helps you make smarter decisions about which debt to pay down first — and whether a cash-out refinance or debt consolidation makes financial sense.
The Real Cost of High-Interest Debt
Credit Cards — The Most Expensive Debt Most People Carry
At the current average credit card rate of 24%, every $1,000 in credit card debt costs you $240 per year in interest — automatically, whether you use the card or not. A $6,500 balance costs $1,560 per year. A $15,000 balance costs $3,600 per year. That is money that leaves your account every year and builds absolutely zero wealth or equity.
More importantly for home buyers: credit card minimum payments count against your debt-to-income ratio. Paying off a $6,500 credit card does not just save you $1,560 per year in interest — it removes that minimum payment from your DTI calculation, potentially qualifying you for a significantly larger mortgage.
Auto Loans — The Debt That Depreciates
Auto loans are a fact of life for most people — but they are worth understanding clearly. Your car is depreciating while you pay interest on it. A $25,000 car loan at 8% costs $2,000 in interest in year one alone. And unlike a mortgage, there is no equity being built — the asset is worth less every single day you own it.
Auto loan payments are fully counted in your debt-to-income ratio for mortgage qualification. A $500/month car payment can reduce your mortgage qualifying power by $80,000–$100,000 depending on your income. This is one of the most important calculations to understand before buying a home.
Student Loans — The Long-Tail Debt
Student loans are typically the most favorable debt most people carry — lower rates, income-based repayment options, and in some cases deferred payments. But they still count against your DTI for mortgage qualification and their balance adds to your weighted average debt cost. Understanding exactly what your student loans are costing you annually is an important part of the full financial picture.
How Your Debt Affects Your Ability to Buy a Home
Every debt you carry affects your mortgage qualification in two ways — and most buyers only think about one of them.
The Two Ways Debt Affects Your Mortgage
1. Debt-to-Income Ratio (DTI) — Lenders add up all your monthly minimum debt payments and divide by your gross monthly income. Most loan programs require this to stay below 43–50%. A $500 car payment and $150 in credit card minimums = $650/month in debt payments. On a $7,500/month gross income, that is 8.7% of your income already spoken for — before any mortgage payment.
2. Available Cash Flow — Even if you qualify on paper, high debt payments reduce the mortgage payment you can actually afford month to month. Understanding your full debt picture helps you make a mortgage decision you can live with comfortably — not just one that technically qualifies.
Should You Pay Down Debt Before Buying a Home?
This is one of the most common questions we get — and the answer depends on your specific numbers. Here are the key considerations:
When Paying Down Debt First Makes Sense
Paying down debt before buying makes the most sense when: your DTI is above 43% and you cannot qualify for the mortgage you want; you have high-interest debt above 10% that is costing you significantly each year; paying off one debt would dramatically reduce your minimum payments and improve your qualifying power; or your credit utilization is high and paying down cards would meaningfully improve your credit score and mortgage rate.
When Buying Now Can Make More Sense
Buying now can make more sense when: your DTI already qualifies you for the mortgage you want; your debt has low interest rates (below 5–6%) and paying it down slowly while building home equity makes mathematical sense; home prices in your market are appreciating faster than the interest you are saving by delaying; or you have enough savings for both a down payment and debt paydown but not both.
The right answer is different for every buyer. That is exactly why we have this conversation with every client we work with — running the real numbers before making a decision this significant.
Frequently Asked Questions
What debts count against my mortgage DTI?
Lenders count monthly payments on installment loans (car loans, student loans, personal loans) and revolving debt (credit card minimums, home equity lines). They do not count utilities, insurance, subscriptions, childcare, or most living expenses. However, a new mortgage payment will be added to your existing debt payments in the DTI calculation — so the lower your existing debt payments, the more mortgage you can qualify for.
Does paying off a credit card help my mortgage qualification?
Yes — in two ways. First, it removes the minimum payment from your DTI calculation, directly increasing how much mortgage you can qualify for. Second, paying down credit card balances reduces your credit utilization ratio, which can meaningfully improve your credit score — potentially lowering your mortgage rate. Both effects are significant. We can run the exact numbers for your situation at no charge.
Can I do a cash-out refinance to pay off high-interest debt?
If you already own a home with equity, a cash-out refinance can be a powerful debt consolidation tool — replacing 24% credit card debt with a 6–7% mortgage rate, for example. Whether it makes sense depends on your current mortgage rate, the amount of equity you have, and the total cost of the refinance. This is exactly the kind of analysis we do for clients — talk to us about your specific situation.
Which debt should I pay off first?
Two schools of thought: the Avalanche method (pay highest interest rate first — mathematically optimal, saves the most money) and the Snowball method (pay smallest balance first — psychologically motivating, builds momentum). For mortgage qualification purposes, paying off debts with the highest monthly minimum payments relative to their balance often has the biggest immediate impact on your DTI. Use our Debt Reduction Calculator to model both strategies with your real numbers.
Know Your Debt — Then Know Your Options
Run your numbers above, then talk to Kirk or Ken. We will show you exactly how your debt picture affects your mortgage qualification and what the fastest path to homeownership looks like for your specific situation. No pressure, no obligation, no junk fees.
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