When you borrow money the balance is often called the principal balance. If you have all of the terms and conditions of your loan you can calculate how the principal is repaid when you make payments. Your payment is divided between the principal balance and interest. Interest is calculated on the unpaid balance, therefore the faster you pay down your balance the less you will have to pay in finance charges. To pay your balance faster you may want to consider paying more than your standard monthly payment.

1. • 1

     Gather all of the terms and conditions of your loan. Your loan could be a credit card account, mortgage loan, automobile loan, or even a home equity line of credit. A 10 year loan in the amount of $20,000 with an interest rate of 6 percent will have payments in the amount of $222.04.

   • 2

     Calculate the amount of interest due for the first month. Multiply the entire loan amount ($20,000) times the interest rate (.06). Now divide the result ($1,200) by 12 to get the amount of interest due for the first month, which is $100.

   • 3

     Subtracting the interest from the monthly payment provides the amount of principal repayment. The payment in the amount of $222.04 minus interest of $100 leaves a principal payment of $122.04. The new balance will be $19,877.96 ($20,000 - $122.04). If a payment of $5,000 would have been made instead of the standard payment of $122.04, the interest charge would have been the same but the principal repayment would have been $4,877.96 ($5,000 - $122.04), leaving a new balance of $15,122.04 ($20,000 -- $4,877.96).