Debt Consolidation Calculator

List each debt you are considering consolidating with its balance, monthly payment and interest rate, then enter the terms of the consolidation loan. The calculator runs your current debts forward at their existing payments and compares them with the new loan, including any fee or points, so you can see whether consolidating saves money or only lowers the monthly payment.

Debt Consolidation

Debt consolidation means taking out one new loan to pay off several existing debts, leaving a single payment, a single rate and a single due date. It is most often used for high-interest credit card balances, but can also cover medical bills, store cards and personal loans. Common tools are unsecured personal loans, 0% balance transfer credit cards, home equity loans or lines of credit and, for some borrowers, a debt management plan arranged through a credit counselor.

Consolidation pays off when the new loan's real APR, including fees, is lower than the combined rate on your current debts. In the default example the three debts carry rates of 18% to 20%, and the loan's 10.99% rate, even after a 5% fee, gives a real APR of about 13.25%, against roughly 18.9% on the existing debts. The payment drops by about $87 a month, the debt is gone five months sooner and the total cost falls by about $3,200.

A lower payment does not by itself mean a cheaper loan. Stretching repayment over a longer term can reduce the monthly bill while raising the total interest, so compare the total cost and payoff time as well. Secured options such as home equity loans offer lower rates but put your home at risk if you cannot pay.

Considerations

Before applying, weigh these points:

• Fees: origination fees, balance transfer fees of 3% to 5% and closing costs on home equity loans can erase much of the interest saving.
• Rate and credit: the best consolidation rates go to borrowers with good credit. If your score is low, the offer may not beat your current rates.
• Term: a longer term lowers the payment but can raise total interest. Choose the shortest term you can comfortably afford.
• Collateral and credit impact: borrowing against your home turns unsecured debt into secured debt, and a new loan adds a hard inquiry. Paying cards down can lower utilisation and help your score over time.

Fix the Real Problem First

Consolidation reorganises debt; it does not reduce how much you owe or change the habits that created it. The biggest danger is that freshly cleared credit cards fill up again, leaving you with both the new loan and new card balances. Before consolidating, build a realistic budget, track where your money goes and set aside a small emergency fund so that surprises do not end up on a card. Consider freezing or putting away the cards you pay off rather than closing them all, which can hurt your credit. If your debts feel unmanageable even after cutting spending, a nonprofit credit counselor can review your options free of charge or at low cost.

Frequently asked questions

Sources

• Consumer Financial Protection Bureau
• FTC – How to get out of debt