Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Consolidation replaces several debts with one loan, and it pays only if the new rate and the new term work together. Rolling $25,000 at about 18 percent into a four year loan at 10 percent with a $500 fee gives a payment near $647, and the model estimates about $3,873 of lifetime savings. A lower payment from a much longer term can cost more in total, so the rate and the term have to be read together.
Before you rely on it
What to check
Include the origination fee and compare the total paid on both paths over the same period. A longer new term can hide a higher total under a lower payment.
The common error
Where people go wrong with debt consolidation calculator
Clearing the cards and then using them again. The consolidation loan is a repayment plan, and it fails when new balances build on top of it.
Sensitivity evidence
How total debt balance changes the estimated lifetime savings
| Total debt balance | Estimated lifetime savings | New monthly payment |
|---|---|---|
| $20,000 | $776 | $520 |
| $22,500 | $2,115 | $583 |
| $25,000worked example | $3,873 | $647 |
| $27,500 | $6,137 | $710 |
| $30,000 | $9,026 | $774 |
Every input, tested
Which input moves the estimated lifetime savings most
| Input | Tested from | To | Estimated lifetime savings at each end | Swing |
|---|---|---|---|---|
| Total debt balance | $22,500 | $27,500 | $2,115 to $6,137 | $4,022 (104%) |
| Current weighted APR | 16.0% | 20.0% | $2,239 to $5,751 | $3,512 (91%) |
| Current monthly payment | $675 | $825 | $5,721 to $2,543 | $3,178 (82%) |
| New loan term | 3.0 years | 5.0 years | $5,295 to $2,409 | $2,887 (75%) |
| Consolidation APR | 8.0% | 12.0% | $5,035 to $2,684 | $2,351 (61%) |
| Origination fees | $450 | $550 | $3,934 to $3,812 | $122 (3.1%) |
Two variables at once
Estimated lifetime savings by total debt balance and current weighted APR
| Total debt balance \ Current weighted APR | 14.0% | 18.0% | 22.0% |
|---|---|---|---|
| $20,000 | -$860 | $776 | $2,751 |
| $22,500 | -$146 | $2,115 | $4,964 |
| $25,000 | $800 | $3,873 | $7,946 |
| $27,500 | $2,008 | $6,137 | $11,960 |
| $30,000 | $3,515 | $9,026 | $17,435 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Total debt balance | $25,000 |
| Current weighted APR | 18.0% |
| Current monthly payment | $750 |
| Consolidation APR | 10.0% |
| New loan term | 4.0 years |
| Origination fees | $500 |
| Estimated lifetime savings | $3,873 |
| New monthly payment | $647 |
Where the inputs come from
Total debt balance is the sum of the debts you would combine, and the current weighted APR is the average rate across them, weighted by balance, which you can compute from your statements. Current monthly payment is what you pay across all of them today. The consolidation APR, term and origination fees come from a loan offer, so get a prequalified quote. Do not include debts you would keep separate.
Using the estimated lifetime savings in a real decision
Compare the new payment with what you are paying now.
When the result stops applying
Consolidation does not remove the debt or fix the spending that created it, and running cards up again after paying them with a loan leaves you worse off. A longer term can cost more in interest even at a lower rate. Loans secured by your home put the house at risk. Origination fees and any prepayment charges on the old debts reduce the savings.
What to compare it with
Compare with a balance transfer on the balance transfer calculator, and see the personal loan and loan comparison pages for offers. The debt-to-income and credit utilization calculators show the credit effects. A payoff plan with the debt-free date calculator works with or without a loan.
People also ask
Frequently asked questions
Does debt consolidation hurt my credit?
It can lower your score slightly at first from the inquiry and new account, but paying off cards lowers utilization, which often raises the score.
Is a consolidation loan better than a balance transfer?
A loan gives a fixed rate and payoff date, while a transfer offers 0% for a limited time. The better choice depends on how fast you can pay the balance.
When does consolidation not make sense?
When the new rate is not much lower, when fees are high, when you would extend the term a lot, or when you are likely to use the paid-off cards again.