About the Debt Consolidation Calculator
Debt consolidation replaces several high-rate debts with one amortizing loan at a lower rate — usually a personal loan, sometimes a HELOC or balance-transfer approach. When it works, it combines interest savings, a fixed end date, and one payment to manage.
When it fails, the failure mode is behavioral: the emptied credit cards get refilled and the debt doubles. The tool compares dollars; the discipline part is yours.
The formula behind it
Two payoffs simulated to compare:
Old: current APR, current payment • New: new APR, amortized payment over the new termThe old plan uses your actual payment against the current balance at the existing rate (revolving-style payoff). The new plan amortizes the same balance at the loan’s APR over the term, giving its standard payment. Compare total interest and total months.
Worked example
Defaults — $18,000 at a 22% blended APR paying $500/month, consolidated into a $18,000 loan at 14% over 3 years:
- Old plan: payoff takes about 60 months (5 years) and costs about $12,000 of interest.
- New loan: payment ≈ $615, exactly 36 payments, interest about $4,150.
Takeaway: ≈ $7,850 of interest avoided, with the finish date moving up two full years. The one requirement: the emptied cards must stay emptied.
What moves the result
- Blended rate — weighted-average rate across your cards; the loan rate must beat that average to make dollars-math sense.
- Loan fees — origination costs shift the effective rate; check whether the tool input should also include the fee (raise the APR to cover).
- Term — stretching the new loan to lower the payment can quietly remove the consolidation’s benefit: total interest can rise.
- Payment discipline — the current payment level and the loan payment must be the same “realistic amount” for a fair comparison.
Practical tips
- Consolidate only the cards you are prepared to leave empty; the behavioral trap is the leading cause of failed consolidations.
- Pre-qualify several personal-loan offers at once; a soft inquiry at pre-approval is free and shows the real rates you qualify for now.
- Watch whether the loan charges prepayment penalties — a penalty on paying early empties the payoff-targeting upside.
- If a HELOC quote is in the mix, hold the risk — it turns unsecured card debt into a loan tied to your house.
- Automate the single payment; consolidating and then missing months is the worst of both worlds you can build.
Frequently asked questions
Is debt consolidation a loan or a service?
It can be either. A consolidation loan is an actual loan at a new rate. A “debt-consolidation service” is often a case-management program (or worse — some charge steep fees). Know the difference before signing anything.
What about credit scores after consolidation?
Usually improves: all revolving utilization drops sharply. But the new installment loan’s inquiries and reduced age-inform points can pull points in the short run.
Does the calculator include origination fees?
No — enter a slightly higher APR (add about one point for each percent of fee amortized over the term), or use the APR calculator to fold the fee in precisely.