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About This Calculator
Determine whether combining multiple debts into a single loan with a lower interest rate will save you money and simplify your finances. Debt consolidation works best when the new rate is meaningfully lower than the weighted average of your existing debts. This calculator compares your current total payments and interest against a consolidated loan to show your potential savings.
Quick Tips
- 1 Only consolidate if the new interest rate is lower than the average of existing debts.
- 2 Close consolidated credit cards to avoid running up new balances on top of the loan.
- 3 A home equity loan has the lowest rate but puts your house at risk if you default.
Example Calculation
Consolidating $22,000 across 4 credit cards (avg 21% APR) into one loan at 10.5% for 48 months.
Old minimums: $660 | New payment: $563 | Monthly savings: $97 | Interest saved: $8,940
How Debt Consolidation Works
Debt consolidation combines multiple debts into a single loan with one monthly payment, ideally at a lower interest rate than your existing debts. You take out a new loan to pay off credit cards, medical bills, or other high-interest obligations, simplifying your finances into one predictable payment. The goal is to reduce your overall interest costs and pay off your debt faster with a structured repayment timeline.
Debt Consolidation Loan vs Balance Transfer
A debt consolidation loan provides a lump sum to pay off existing debts and typically carries a fixed interest rate for the full repayment term. Balance transfer credit cards offer introductory 0% APR periods lasting 12 to 21 months, but rates jump to 18% to 28% afterward. A consolidation loan is better for larger amounts that cannot be paid off within a promotional period, while balance transfers work best for smaller debts you can eliminate before the introductory rate expires.
When Debt Consolidation Saves You Money
Debt consolidation saves money when the new loan rate is meaningfully lower than the weighted average rate of your existing debts. For example, replacing three credit cards averaging 24% APR with a personal loan at 10% can save thousands in interest over a three to five year repayment period. The savings are greatest when you maintain the same or shorter repayment timeline and avoid accumulating new debt on the cards you just paid off.
Risks and Pitfalls of Debt Consolidation
The biggest risk of debt consolidation is running up new balances on newly cleared credit cards, which can leave you in a worse financial position than before. Extending your repayment term to get lower monthly payments may result in paying more total interest even at a lower rate. Some consolidation loans charge origination fees of 1% to 8%, and secured consolidation loans that use your home as collateral put your property at risk if you cannot keep up with payments.
Frequently Asked Questions
Debt consolidation combines multiple debts (credit cards, personal loans, etc.) into a single loan with one monthly payment, ideally at a lower interest rate. This simplifies your finances and can save thousands in interest over time.
Savings depend on the rate difference and your balance. Consolidating $25,000 from 22% APR credit cards to a 10.5% personal loan can save $5,000–$10,000 in interest, depending on your payoff timeline.
Initially, a hard inquiry and new account may lower your score by a few points. However, consolidation often improves your score over time by reducing credit utilization and establishing a consistent payment history.
Most lenders require a credit score of 580+ (620+ for the best rates), a stable income, and a debt-to-income ratio below 50%. Better credit scores get significantly lower rates, which increases your savings from consolidation.