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Debt consolidation combines multiple debts into a single loan, ideally at a lower interest rate. This calculator compares your current debt payments and interest with a consolidated loan to determine potential savings.
Formula
Savings = (Current Total Interest) - (Consolidated Interest) - (Consolidation Fees)
The calculator sums interest paid on current debts, calculates interest on the consolidated loan, and subtracts any consolidation fees to determine net savings.
A lower monthly payment with a longer term may cost more in total interest.
Consolidation treats symptoms; create a budget to prevent accumulating new debt.
Consolidate high-interest credit card balances into one lower-rate loan.
Simplify finances by combining several debt payments into one.
Consolidation makes sense when you can get a lower interest rate than your weighted average current rate, you can afford the new payment, and the savings outweigh any fees. It's often beneficial for high-interest credit card debt.
Initially, a hard inquiry and new account may slightly lower your score. However, consolidation can help long-term by reducing utilization and simplifying payments. Consistently paying on time will improve your score.
You can typically consolidate credit cards, personal loans, medical bills, and other unsecured debts. Student loans have specific consolidation programs. Secured debts like mortgages require refinancing.
Risks include extending your debt timeline (paying more total interest), fees that offset savings, using home equity (risking your home), and the temptation to rack up new debt on paid-off cards.