Why use this calculator
Consolidation is marketed on the monthly payment, which is exactly the number that can be improved by making the debt last longer. Dropping from a 22 per cent card to a 12 per cent personal loan sounds unarguable, and it still costs you more if the card was going to be cleared in three years and the new loan runs for seven.
The only honest test is to hold your payment constant, work out what your existing balances would cost if you kept paying that amount and attacked the highest rate first, and compare it against the total interest and fees on the new loan. That is what this calculator does.
It also surfaces the situation where consolidation is unambiguously the right move: when your current payment barely covers the interest, the balances never clear at all, and a structured loan with a fixed end date is the only thing that finishes the job.
How to use it
- Enter each balance from the closing figure on the most recent statement rather than your memory of it, and enter the purchase interest rate shown on that same statement, not a promotional or cash advance rate.
- If you only have one or two debts, leave the remaining balance fields at zero and the calculator will ignore them.
- The most important input is what you actually pay in total across all the accounts each month, which you should take from your bank transactions rather than from the minimums, because most people pay more than the minimum and using the minimum understates your current progress.
- Then enter the rate, term and establishment fee for the consolidation loan you have been offered, using the comparison rate if one is quoted, since the fee is usually added to the amount borrowed rather than paid separately.
What each result means
- Total debt
- The three balances added together. This plus the establishment fee is what the consolidation loan has to cover.
- Average interest rate now
- Your blended rate weighted by balance. Compare it against the consolidation rate, but never in isolation from the term.
- Your current monthly payment
- What you already pay across all accounts. Holding this constant is what makes the comparison fair.
- Time to clear at your current payment
- How long the existing balances take if you keep paying this amount and attack the highest rate first.
- Interest on your current path
- Total interest you would pay before the balances reach zero without consolidating anything.
- Consolidated monthly repayment
- The fixed repayment on the new loan. If it is lower than what you pay now, the difference is only a gain if you save it.
- Consolidated payoff time
- The loan term, which is fixed. Unlike revolving credit there is a guaranteed end date, which is genuinely valuable.
- Interest and fees if you consolidate
- Everything the new loan costs above the debt itself, including the establishment fee added at the start.
- Consolidating would
- The bottom line: whether consolidating saves money or costs more than simply continuing to pay what you already pay.
- Paying your current amount on the new loan
- How quickly the consolidated loan would clear, and what it would cost, if you kept paying what you pay now instead of dropping to the lower consolidated repayment. Check the lender allows extra repayments without a fee.
- Change in monthly payment
- How your cash flow changes. A lower payment that gets respent is how consolidation makes people worse off.
The formula
Your current path is simulated month by month using the avalanche method: interest accrues on every balance at its own rate divided by twelve, then the entire payment is applied to the highest-rate balance until it clears, then to the next. That continues until every balance reaches zero or 600 months pass, whichever comes first.
Total debt = the sum of the three balances
The weighted average rate = the sum of (each balance multiplied by its rate) divided by the total debt
The consolidation loan finances the total debt plus the establishment fee, and its repayment uses the standard amortisation formula at the new rate divided by twelve over the term in months.
Interest and fees if you consolidate = (repayment multiplied by months, minus the amount financed) plus the fee
The comparison is the difference between the two interest figures.
How this number is used in practice
The trap is the term, not the rate. A consolidation loan almost always quotes a lower interest rate than a credit card, which makes it feel automatically better, but if you were already paying enough to clear the cards in three years then a five or seven year loan adds years of interest that the lower rate never recovers.
Run the term table and find the shortest term your budget can carry, because in almost every realistic scenario the shortest affordable term is the cheapest outcome. If the lender will not write the loan for three years, that is useful information about whether they think you can afford it.
Consolidation is unambiguously right in one situation: when the payment you can sustain is close to the interest accruing, so the balances barely move year after year. Revolving credit has no end date and no forced amortisation, which is exactly why balances sit for a decade.
Converting that to a term loan with a fixed payment and a fixed finish date changes the outcome entirely, even at a rate that is not much lower. The structure is doing the work, not the rate, and that is worth paying an establishment fee for.
Whatever the numbers say, consolidation only works if the cards are closed. The common failure is entirely behavioural: the balances are paid off, the accounts stay open with their limits intact, the spending that created the debt continues, and within eighteen months the borrower has both a personal loan and fresh card balances.
Close the accounts as part of the consolidation, not afterwards, and if you cannot bring yourself to close them then ask the issuer to reduce the limit to a few hundred dollars. Also check for early repayment fees on the new loan, because paying it out ahead of schedule should be rewarded rather than penalised.
Worked examples
6,500 dollars at 21.99 per cent, 11,000 at 17.9 and 4,200 at 24.5, paying 700 dollars a month, consolidated at 12.5 per cent over five years
Paying 700 dollars now clears the debt in 3 years 0 months for 5,500 dollars of interest, while consolidating over five years costs 8,062 dollars
The same debts consolidated over three years instead of five
The repayment rises to 741.32 dollars but the interest and fees fall to 4,782 dollars, beating the current path
The same debts where only 350 dollars a month is being paid
The balances never clear at that payment, so the five year consolidation at 8,062 dollars is the cheaper path
When people use it
- Testing whether a consolidation offer actually beats continuing to pay what you already pay
- Finding the shortest consolidation term your budget can sustain
- Checking whether your current payment will ever clear the balances at all
- Comparing two consolidation offers with different rates, terms and establishment fees
- Showing yourself the cost of stretching the same debt over seven years instead of three
Tips
- Choose the shortest term you can afford, not the lowest repayment. The repayment is the number lenders optimise and the term is the number that costs you.
- Close the old accounts as part of the consolidation. Leaving the limits open is why so many people end up with both the loan and new card balances.
- Use the comparison rate, which folds in fees, rather than the headline rate when you compare offers.
- If the new repayment is lower than what you pay now, direct the difference at the loan rather than absorbing it into spending.
- Check for early repayment fees before signing. A loan you cannot pay out early removes your ability to finish sooner if things improve.
- If your current payment does not cover the interest, talk to the lender's hardship team as well. A hardship arrangement can beat a new loan you cannot service either.
What it assumes, and where it stops being accurate
- Assumes no new spending on any of the existing accounts. Continued card use is the single most common reason consolidation fails.
- Assumes your current payment stays constant. In practice many people pay minimums that fall as the balance drops, which extends payoff considerably.
- Models the current path with the avalanche method, applying everything above interest to the highest-rate debt first. Paying the smallest balance first costs slightly more.
- Assumes the establishment fee is added to the amount borrowed, which is standard, and excludes any ongoing monthly account fee on the new loan.
- Excludes balance transfer offers, hardship arrangements and any early repayment or exit fees on either side.
- Assumes fixed interest rates throughout. Credit card rates can be changed by the issuer with notice.
- Ignores the effect on your credit file, which typically dips on application and improves with consistent repayment.
Terms used on this page
- Avalanche method
- Paying the minimum on every debt and directing all spare money at the highest interest rate first, which minimises total interest.
- Weighted average rate
- The blended interest rate across several debts, weighted by how large each balance is.
- Establishment fee
- An upfront charge for setting up a personal loan, usually added to the amount borrowed.
- Comparison rate
- A rate that incorporates most fees, designed to make loans with different fee structures comparable.
- Balance transfer
- Moving a card balance to another card at a low or zero promotional rate for a fixed period, usually for a fee.
- Credit utilisation
- The share of your available credit limits currently in use, a significant factor in credit scoring.
Questions people ask
- Does consolidating always save money?
- No. It saves money when the rate drops and the term does not stretch. If you were on track to clear the balances in three years and the consolidation loan runs for seven, the extra years of interest usually outweigh the lower rate, even though the monthly payment looks much better.
- Will consolidating hurt my credit score?
- Applying for the new loan causes a small temporary dip, and closing long-standing accounts can shorten your average account age. Against that, reducing credit utilisation and making consistent fixed repayments generally improves your file over six to twelve months, so the medium-term effect is usually positive.
- What debts can I consolidate?
- Unsecured debts such as credit cards, store cards, personal loans, buy now pay later balances and some medical bills are usually eligible. Secured debts like a mortgage or a car loan are treated separately, and rolling unsecured debt into a mortgage converts a short expensive debt into a long cheap one that lasts decades.
- Is a balance transfer card better than a consolidation loan?
- For a smaller balance you can realistically clear inside the promotional period, a zero per cent balance transfer is usually cheaper, though transfer fees of one to three per cent apply. For larger balances or longer horizons the transfer rate reverts to a high purchase rate, and a term loan with a forced end date is safer.
- Should I roll the debt into my mortgage?
- It cuts the rate dramatically and is often a mistake, because a debt you would have cleared in four years now runs for twenty-five at mortgage pace. If you do it, make an additional repayment equal to the old card payment so the borrowed amount is cleared on the original timetable rather than the mortgage one.
- What if my payment does not even cover the interest?
- Then the balances grow no matter how long you pay, and the calculator will say the debt is not cleared within fifty years. In that situation a consolidation loan with a fixed term is usually better than nothing, and you should also contact the lender's hardship team and a free financial counselling service.
Use this with
Debt Consolidation Calculator answers one part of the question. These pick up where it stops: Debt Payoff Calculator, Credit Card Payoff Calculator, Loan Repayment Calculator and Budget Planner Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- MoneySmart - Loans, credit and debt. Australian guidance on consolidation, comparison rates and free financial counselling
- Consumer Financial Protection Bureau. US guidance on debt consolidation, credit cards and debt relief
- GOV.UK - Options for dealing with debt. UK debt options including debt management plans
Debt Consolidation Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.