How to use the debt consolidation calculator
- List your current debts with the balance, the interest rate and the monthly payment you make on each.
- Enter the consolidation loan rate and term, and the origination fee. Choose whether the fee is added to the loan or paid up front.
- Choose whether you will pay the new loan its regular payment or what you pay today. The second option keeps your total payment the same.
- Read the interest and fees saved, the change in monthly payment, the time to be debt-free and the month when the fee is recovered.
Formula
Current interest: pay each debt with its own payment, interest = balance x APR / 12 each month
New loan = total balance (+ fee if added to the loan)
Payment = L x i / (1 - (1 + i)^-n)
Saved = current interest - (new interest + fee)
Every month is rounded to the cent. Break-even is the first month from which interest paid so far plus the fee is lower with the new loan than with your current debts, and stays lower.
Worked example
Three debts: a $6,500 card at 24.99% with a $220 payment, a $3,200 card at 19.99% with a $110 payment and a $4,300 personal loan at 14% with a $150 payment. Total balance $14,000, payments $480 a month, interest to pay $5,875.12, and debt-free in 3 years 11 months.
A 4-year loan at 11.5% with a 4% fee added to it is $14,560 and has a payment of $379.86, which is $100.14 lower. Interest is $3,673.01 plus the $560 fee, so the cost is $4,233.01, or $1,642.11 less. The fee is recovered by month 6.
If you keep paying $480 on the new loan, it is cleared in 3 years 1 month and the saving grows to $2,589.49. With a worse offer of 22% over 5 years and a 5% fee, the total would be $4,484.71 higher.
When consolidation helps
Consolidation can save money when the new rate is clearly lower than the weighted rate of your current debts and the fee is small. It can also simplify life by replacing several due dates with one. It does not reduce what you owe, and a lower payment from a longer term can cost more in total, which is why the page shows total interest and time to be debt-free next to the payment.
The fairest test of an offer is often the second payment option: keep paying what you pay today. Then any savings come from the rate alone, and you finish sooner. Compare payoff strategies for your current debts with the debt payoff calculator.
Fees and break-even
An origination fee is paid up front or added to the loan, and either way it is a real cost. The break-even month shows how long lower interest takes to repay it. If you expect to pay the loan off or refinance before that month, the fee is not recovered. If the table says not within the payoff period, the offer costs more than your current path.
What to watch for
The biggest risk is running up new balances on cards you just paid off. This comparison assumes you do not. Also check for prepayment penalties, promotional rates that expire, and whether secured loans put an asset at risk. For card balances in particular, the credit card payoff calculator shows how long a payment takes to clear a balance.
Assumptions and limits
- Each current debt is paid with the payment you enter until it reaches zero. The payment must cover that month's interest.
- Rates are fixed and monthly interest is the balance times the APR divided by 12, rounded to the cent.
- The consolidation loan has a fixed rate and equal monthly payments. The fee is a percent of the total balance.
- The comparison counts interest and the origination fee only. It does not value the cash a lower payment frees up.
- New charges on paid-off cards, promotional rates, late fees, credit score effects and taxes are not modeled.
- This is a comparison, not a loan offer and not financial advice.
Frequently asked questions
Is debt consolidation worth it?
It is worth it when interest plus the fee on the new loan is lower than the interest you would pay on your current debts. In the example the new loan saves $1,642.11. The result depends on your own rates, term and fee.
Why does a lower monthly payment not always mean savings?
A longer term spreads the balance over more months, so interest accrues for longer. A lower payment can cost more in total. Compare total interest and the time to be debt-free, not only the payment.
How do I find the break-even point for the fee?
Compare cumulative interest on both paths month by month, adding the fee to the new loan. The first month from which the new loan stays cheaper is the break-even. The example reaches it in month 6.
Should the fee be added to the loan or paid up front?
Adding it keeps cash in hand but you pay interest on it. Paying up front costs less overall when you can afford it. In the example, paying up front saves $1,783.35 instead of $1,642.11.
What does paying what I pay today do?
It keeps your total monthly payment at today's level, so the extra over the loan payment pays the balance down faster. In the example it clears the new loan in 3 years 1 month instead of 4 years.