When to Use Online Financial Calculators

Technology has brought us so many online tools for financial planning; there are online financial calculators for literally everything. Mortgage financing/refinancing, debt reduction, car payments, interest, and budgeting are all things that online financial calculators can help manage.

Online financial calculators are very useful when planning anything from a new mortgage to calculating the interest that you are paying on credit cards. Of all the online financial calculators, mortgage calculators can be used for the most diverse range of financial calculations.

What’s really cool about mortgage calculators is that you can use them to not only calculate monthly payments on a mortgage but also on loans.

If you have a lot of debt for example, here is how you can use a mortgage calculator to create different financial scenarios if you were to consolidate:

1.     Input your total debt into the mortgage calculator.

2.     Set the term and amortization to 5 years – this will give you an idea of what it would take to get you out of debt within 5 years.

3.     Calculate your payment based on an approx. interest rate that you believe best reflects the average interest rate that you would pay if the bank gave you a loan to consolidate your debt. A general rule of thumb would be to use 10%-15% if your calculation is based on a bank's loan rate.

4.     Now do the same calculations with the interest rate set to zero.

Completing the above steps will enable you to see how much you would have to pay monthly if you were to consolidate debt at zero percent interest vs. full interest.

One risk though when it comes to using online financial calculators is that calculations may not be accurate once the time comes to seek out a credit product or debt solution that fits with the estimates that you have calculated. For example, what if you have made a calculation based on being out of debt in 5 years but then your bank offers you a line of credit? A line of credit may leave you with a low minimum monthly payment, but may take much longer than your estimate to pay off because it is like having one giant credit card.

If you are using online financial calculators to try to come up with financial solutions because you are in debt, sometimes it makes sense to use them with the guidance of a financial professional/consultant.

Hiring your own financial consultant can enable you to have a professional review your budget, credit and finances, and then work with you to use online financial calculators to build some viable debt consolidation scenarios. A financial consultant will likely have the resources to help you put your plan into motion.

For more information about online financial calculators or if you need help dealing with your debt, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.