Juggling multiple high-interest debts? Debt consolidation combines them into a single loan with one payment, often at a lower interest rate. This calculator helps you determine if consolidation will save money and simplify your finances.
How This Calculator Works
This calculator compares your current situation to a consolidation loan:
- Current Debts: All your existing balances and interest rates
- Current Payments: What you're paying monthly across all debts
- Consolidation Rate: Interest rate on the new combined loan
- Consolidation Term: Repayment period for the new loan
- Monthly Savings: Difference in total monthly payment
- Total Interest Comparison: Which option costs less overall
The Formula Explained
Current Monthly Total = Sum of all current debt payments
Consolidated Payment = P × [r(1+r)^n] / [(1+r)^n - 1]
Where P = total debt, r = monthly rate, n = months
Savings = (Current Total × Months) - (Consolidated Payment × Term)
Step-by-Step Example
Consolidating Multiple Debts
| Current Debt | Balance | APR | Payment |
| Credit Card A | $8,000 | 22% | $240 |
| Credit Card B | $5,000 | 19% | $150 |
| Personal Loan | $7,000 | 14% | $175 |
| Totals | $20,000 | — | $565/mo |
| Consolidation Option | Rate | Term | Payment | Total Interest |
| Keep separate | — | — | $565 | $9,847 |
| Consolidation | 10% | 48 mo | $507 | $4,336 |
Consolidation saves $58/month and $5,511 in total interest!
Frequently Asked Questions
What is debt consolidation?
Debt consolidation combines multiple debts into a single loan with one monthly payment. Instead of juggling several credit cards and loans, you have one payment, often at a lower interest rate. Common methods include personal loans, balance transfer cards, and home equity loans.
Will debt consolidation save me money?
It depends on the rates and terms. Consolidation saves money when: (1) Your consolidated rate is lower than the weighted average of current debts, (2) You don't extend repayment so long that extra interest wipes out savings. Use this calculator to compare total interest paid in both scenarios.
What's the difference between consolidation and refinancing?
Consolidation combines multiple debts into one new loan. Refinancing replaces one existing loan with a new loan at better terms. You might consolidate 5 credit cards into 1 personal loan, or refinance your existing personal loan to a lower rate. Both aim to reduce interest costs.
What are the different ways to consolidate debt?
Options include: (1) Personal loan—fixed rate, fixed term, no collateral required. (2) Balance transfer card—0% promo APR, but limited time and transfer fees. (3) Home equity loan/HELOC—low rates but your home is collateral. (4) 401(k) loan—borrow from yourself, but risky if you leave your job.
Will debt consolidation hurt my credit score?
Short-term, there may be a small dip from the hard inquiry and new account. However, consolidation often helps credit long-term by: (1) Reducing credit utilization if you keep cards open, (2) Adding a diverse account type, (3) Reducing missed payment risk with simpler payments.
What are the dangers of debt consolidation?
Risks include: (1) Extending terms too long—lower payments but more total interest. (2) Racking up new debt—paying off cards then charging them up again. (3) Secured loans—using home equity risks your house. (4) Fees—origination fees and balance transfer fees reduce savings.
When should I NOT consolidate debt?
Avoid consolidation when: (1) You can't qualify for a lower rate than your average current rate, (2) You're close to paying off existing debts, (3) You might add new debt to cleared cards, (4) Fees eat up the savings, (5) You'd use home equity for unsecured debt.
How do I qualify for a debt consolidation loan?
Lenders consider: (1) Credit score—650+ for best rates, some lenders accept lower. (2) Income—steady employment and sufficient income to cover payments. (3) Debt-to-income ratio—typically under 40%. (4) Credit history—fewer negatives means better offers. Shop multiple lenders to compare.
Key Points to Remember
- Compare total interest: Not just monthly payments
- Don't extend too long: Lower payments may cost more overall
- Address the root cause: Consolidation fails if you add new debt
- Shop for rates: Rates vary significantly between lenders
- Consider secured vs unsecured: Lower rates but higher risk with collateral