Why use this calculator
If you are juggling multiple high-interest debts like credit cards and personal loans, debt consolidation can simplify your finances and potentially save you thousands in interest. This calculator compares the total cost of maintaining your current debts separately versus consolidating them into a single lower-rate loan, showing exactly how much you could save in monthly payments and total interest.
How to use it
Enter the balance and interest rate for up to three debts. Then enter the interest rate and term for a potential consolidation loan. The calculator compares your current total monthly payments and interest costs against the consolidated option, showing potential savings.
The formula
Each debt uses the standard amortization formula: M = P x [r(1+r)^n] / [(1+r)^n - 1]. Total interest is calculated as (Monthly Payment x Number of Months) - Principal. Savings are the difference between separate and consolidated total interest costs.
Worked examples
$5,000 at 22%, $8,000 at 18%, $3,000 at 24% consolidated at 12% over 5 years
Save approximately $200/month and over $5,000 in total interest
Three credit cards totaling $20,000 at an average 20% consolidated to 10% over 3 years
Significant monthly payment reduction with thousands saved in interest
When people use it
- Evaluating whether consolidation is financially worthwhile
- Comparing consolidation loan offers from different lenders
- Planning to become debt-free with a structured repayment plan
- Understanding the true cost of maintaining multiple high-interest debts
Tips
- Consolidation only works if you stop adding to the original debts
- A lower rate with a longer term may reduce monthly payments but increase total interest
- Consider balance transfer cards with 0% introductory rates for short-term consolidation
- Factor in any fees or charges associated with the consolidation loan
Questions people ask
- Will debt consolidation hurt my credit score?
- Initially, applying for a new loan may cause a small, temporary dip in your credit score. However, over time, consolidation can improve your score by reducing credit utilization and demonstrating consistent repayment on a single account.
- What types of debt can I consolidate?
- You can consolidate most unsecured debts including credit cards, personal loans, store cards, and some medical bills. Secured debts like mortgages and car loans typically require separate arrangements.
- Is debt consolidation always a good idea?
- Not always. If the consolidated loan has a longer term, you may pay more total interest despite a lower rate. It also requires discipline to avoid re-accumulating debt on the original accounts. Consolidation works best when combined with a commitment to changed spending habits.