Debt Consolidation Calculator: Will a Consolidation Loan Save Money?
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Debt consolidation replaces several debts with one loan. It saves money only if the loan’s rate, fee and term cost you less in total interest than your current debts.
Your 3 debts total $17,700 at an average rate of 24.34%. A $18,408 consolidation loan (including a $708 fee) at 12.50% for 48 months costs $489.28 a month and $5,078 in interest, compared with $10,321 at your current payments. You would save $5,243 in interest.
Your debts today
| Debt | Balance | APR | Payment | Payoff | Interest |
|---|---|---|---|---|---|
| Debt 1 | $9,000 | 24.99% | $300.00 | 4 years | $5,267 |
| Debt 2 | $5,500 | 19.99% | $170.00 | 3 years 11 months | $2,467 |
| Debt 3 | $3,200 | 29.99% | $110.00 | 4 years 5 months | $2,586 |
| Total | $17,700 | 24.34% | $580.00 | 4 years 5 months | $10,321 |
Show the steps
- Add the debts: $17,700.00. Fee: $17,700.00 × 4.00% = $708.00, giving a loan of $18,408.00.
- New payment: $18,408.00 at 12.500% over 48 months = $489.28.
- Interest on the new loan: $489.28 × 48 − $18,408.00 = $5,077.74.
Consolidation loan payment
Payment = L × r ÷ (1 − (1 + r)^−n)
Compare total interest with and without the loan
- Interest on current debts assumes you keep paying the same amount each month and add no new charges.
- Consolidating does not reduce the debt. If you run the cards up again, you end up worse off.
Estimates for planning and learning, not financial, tax, legal or medical advice. Check figures with your lender, tax preparer or doctor before you act.
About this calculator
Combining credit cards and other debts into one loan makes payments simpler and can lower your rate. But a lower monthly payment is not always a saving, so it helps to compare the total interest.
Enter up to four debts with their balances, rates and what you pay now. Then enter the loan offer. The calculator finds the new payment, the interest on both plans and what you would save or lose.
How to use it
- Enter each debt’s balance, APR and the monthly payment you make. Leave unused rows at zero.
- Enter the consolidation loan’s APR, term and origination fee.
- Compare the new payment and total interest with what you pay now.
Questions to ask
- Is the new APR below your current weighted average?
- Is the term shorter than, or close to, your current payoff time?
- Does the fee take away most of the saving?
- Will you stop using the cards you paid off?
Alternatives
A 0% balance transfer card can be cheaper for card debt, and a debt management plan through a nonprofit credit counselor can reduce rates without a new loan.
Sources
Quick check: test yourself
When does debt consolidation save money?
Correct answer: When the new loan has a lower rate and you do not run up new debt. The savings come from a lower rate, not from combining the payments.
A consolidation loan has a 4% origination fee on $10,000. What is the fee?
Correct answer: $400. 10,000 × 0.04 = 400.
A longer loan term usually means…
Correct answer: A lower payment but more total interest. More months means more time to accumulate interest.
Pick an answer for each question.
Common questions
What is debt consolidation?
Taking a new loan to pay off several debts, so you make one payment.
Does consolidation hurt credit?
The inquiry can lower your score slightly at first. Paying down cards can raise it over time.
Is consolidation a good idea?
It helps when the new rate is lower and you stop adding debt. It does not help when it only stretches the debt over a longer term.
What fees should I look for?
Origination fees of 1% to 8%, and sometimes prepayment fees.
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