Use this calculator to compare your current debt payments against a potential consolidated loan. See if consolidating your debts could save you money monthly and overall.
Your Current Debts
Enter details for up to three of your current debts (e.g., credit cards, personal loans). You can leave fields blank if you have fewer debts.
Potential Consolidation Loan
Enter the details for the new loan you are considering to consolidate your debts.
Understanding Debt Consolidation
Debt consolidation is a strategy where you combine multiple debts, typically high-interest ones like credit card balances or personal loans, into a single, new loan. The primary goal is often to simplify payments, reduce your overall interest rate, and potentially lower your monthly payment.
How Does It Work?
Instead of making several payments to different creditors each month, you make one payment to a single lender. This new loan usually has a lower interest rate than your previous debts, especially if you have a good credit score. Common methods for debt consolidation include:
Personal Loans: An unsecured loan from a bank or credit union that you use to pay off your existing debts.
Balance Transfer Credit Cards: A credit card with a promotional 0% APR for an introductory period, allowing you to transfer high-interest balances and pay them down without accruing interest for a time.
Home Equity Loans or Lines of Credit (HELOCs): Using the equity in your home as collateral for a loan. These often have lower interest rates but put your home at risk if you default.
Benefits of Debt Consolidation
Lower Interest Rates: If you qualify for a consolidation loan with a lower APR than your current debts, you can save a significant amount on interest over time.
Simplified Payments: Instead of juggling multiple due dates and minimum payments, you have just one payment to remember each month.
Reduced Monthly Payments: By extending the loan term or securing a lower interest rate, your new monthly payment might be more manageable, freeing up cash flow.
Clearer Path to Debt Freedom: A single, fixed payment plan can make it easier to track your progress and stay motivated.
Potential Downsides and Considerations
Longer Repayment Period: While monthly payments might be lower, extending the loan term can sometimes mean paying more interest overall, even with a lower APR.
Fees: Consolidation loans or balance transfer cards may come with origination fees or balance transfer fees.
Risk of More Debt: If you consolidate and then run up new balances on your old credit cards, you could end up in a worse financial situation.
Collateral Risk: If you use a home equity loan, your home is at risk if you can't make payments.
Credit Score Impact: Applying for a new loan can temporarily lower your credit score due to a hard inquiry. However, successfully managing the consolidated debt can improve your score over time.
Is Debt Consolidation Right for You?
Debt consolidation is most effective for individuals who:
Have a clear understanding of their total debt.
Can secure a consolidation loan with a significantly lower interest rate.
Are disciplined enough to avoid accumulating new debt after consolidation.
Have a stable income to make consistent payments on the new loan.
Use the calculator above to get an estimate of potential savings and determine if debt consolidation aligns with your financial goals.