Debt Consolidation Calculator
Use this calculator to estimate your potential savings and new monthly payment if you consolidate multiple debts into a single loan.
Your Current Debts
Enter details for up to three of your current debts (e.g., credit cards, personal loans). Leave fields blank if you have fewer debts.
Proposed Consolidation Loan
Consolidation Results
Enter your debt details and click "Calculate Consolidation" to see your potential savings.
Understanding Debt Consolidation
Debt consolidation is a financial strategy that involves taking out a new loan to pay off multiple existing debts. The goal is often to simplify your finances by having a single monthly payment, potentially reduce your overall interest rate, or lower your total monthly payment.
How Debt Consolidation Works
Instead of making separate payments to several creditors (like credit card companies, personal loan providers, etc.), you obtain one larger loan. The funds from this new loan are then used to pay off your existing debts. After consolidation, you only have one monthly payment to make to the new lender.
Benefits of Debt Consolidation
- Simplified Payments: Instead of juggling multiple due dates and minimum payments, you have just one payment to remember each month.
- Potentially Lower Interest Rates: If you qualify for a consolidation loan with a lower interest rate than your current average, you could save a significant amount on interest over the life of the loan.
- Reduced Monthly Payments: By extending the loan term or securing a lower interest rate, your new monthly payment might be lower than the sum of your previous minimum payments, freeing up cash flow.
- Fixed Payoff Date: A consolidation loan typically comes with a fixed term, giving you a clear end date for your debt.
Potential Drawbacks
- Origination Fees: Some consolidation loans come with upfront fees that can increase the total cost of the loan.
- Extending the Payoff Period: While a longer term can lower monthly payments, it might also mean you pay more interest over the long run, even with a lower rate.
- Risk of New Debt: If you don't address the spending habits that led to the original debt, you might be tempted to run up new balances on your now-empty credit cards.
- Impact on Credit Score: Applying for a new loan can temporarily ding your credit score. If you miss payments on the new loan, it can severely damage your credit.
When is Debt Consolidation a Good Idea?
Debt consolidation can be a good option if:
- You have multiple high-interest debts (like credit card balances).
- You have a good credit score, which allows you to qualify for a lower interest rate on a new loan.
- You are disciplined enough to avoid accumulating new debt after consolidation.
- You want to simplify your financial life and have a clear path to becoming debt-free.
How to Use This Calculator
To use the Debt Consolidation Calculator:
- Enter Current Debt Details: Input the outstanding balance, annual interest rate, and minimum monthly payment for up to three of your current debts. If you have fewer than three, leave the extra fields blank.
- Enter Proposed Consolidation Loan Details: Provide the estimated annual interest rate for the new consolidation loan, the desired loan term in years, and any potential origination fees.
- Click "Calculate Consolidation": The calculator will then display a summary of your current debt situation, the estimated details of your consolidation loan, and a comparison showing potential monthly payment differences.
Example Scenario
Let's say you have three debts:
- Credit Card 1: $10,000 balance, 18% interest, $200 minimum payment.
- Credit Card 2: $5,000 balance, 22% interest, $100 minimum payment.
- Personal Loan: $3,000 balance, 15% interest, $75 minimum payment.
Your total current outstanding balance is $18,000, and your total minimum monthly payments are $375.
You find a consolidation loan offer for $18,000 at 10% annual interest over 5 years, with no origination fee.
Using the calculator, you would input these values:
- Debt 1 Balance: 10000, Rate: 18, Min Payment: 200
- Debt 2 Balance: 5000, Rate: 22, Min Payment: 100
- Debt 3 Balance: 3000, Rate: 15, Min Payment: 75
- Consolidation Rate: 10, Term: 5, Origination Fee: 0
The calculator would then show you that your new estimated monthly payment would be approximately $382.44. While this is slightly higher than your current minimums, it provides a fixed payoff date and potentially saves you significant interest over the long term compared to continuing minimum payments on high-interest credit cards indefinitely.
This example highlights that consolidation isn't always about a lower monthly payment, but often about a clearer path to debt freedom and potentially lower total interest paid over a defined period.