Debt consolidation calculator

Roll several balances into one loan and see whether it actually saves money — after the origination fee, and after the longer term that quietly undoes the lower rate.

How the math works

Three formulas stack up here. First, the calculator finds the rate your debts carry as a group — the balance-weighted average, not the simple average, because a big balance at a middling rate hurts more than a tiny one at a brutal rate.

Then it prices the new loan with the standard amortization formula, where i is the monthly rate and n is the term in months.

The piece most calculators drop is the origination fee. A personal-loan fee is usually taken out of the money you receive, so to actually clear your balances you have to borrow more than you owe. That gross-up is where the fee really lands.

Consolidating is worth it only when the interest the lower rate saves beats the interest on the new loan plus that fee. The calculator compares total dollars, not the monthly payment — because the monthly payment is exactly the number that can lie.

Worked example

Take a card balance of $6,500 at the U.S. average credit card APR of 22.76%, with $300 going to it each month. Left alone, that clears in 29 months and costs about $1,951 in interest.

Now consolidate it into a personal loan at 11.40% — roughly the rate the Federal Reserve reports for personal loans — over 36 months. At a 1% origination fee, you'd borrow $6,566, the fee is $65, the payment is $216/month, and the whole thing costs $1,283. That saves about $667. Clear win.

Run the same loan at an 8% origination fee instead. Now the fee is $565, you borrow $7,065, and the total cost climbs to $1,875. The saving shrinks to about $75. Same rate, same term — the fee ate nearly the entire gain. That is the break-even the calculator is built to show: a lower rate does not help if the fee is wide enough to swallow it.

One more move, because it is the common one. Keep the 8% fee but stretch the term to 60 months. The payment drops to $155/month, which feels like relief. The total cost rises to $2,802 — about $851 more than you'd have paid by leaving the card alone. The lower payment was never a saving. It was a longer loan.

When this calculator is wrong

Consolidation is refinancing your own debt, and the fee is the closing cost on a loan whose entire pitch is that it saves you money. The arithmetic above is the easy part. The ways it misleads are mostly about what the arithmetic can't see.

• It treats your debts as one blended lump. In reality, aiming every spare dollar at the highest-rate balance first — the avalanche order — clears the expensive debt sooner and pays slightly less interest than the single-rate figure here. So the "keep paying what you pay now" number is a little pessimistic, which makes consolidation look marginally better than it is.
• It assumes the paid-off cards stay at zero. This is the real failure mode. Consolidation turns three maxed cards into three empty ones plus a loan, and the balances creep back for a large share of borrowers. If that happens, you now carry the loan and the cards. The math on this page assumes a discipline the product itself makes harder.
• It doesn't know whether the new loan is secured. Rolling credit card debt into a home-equity loan or cash-out refinance gets a lower rate by putting your house behind it. Unsecured debt can't take your home; secured debt can. A lower rate is not automatically the safer debt.
• It ignores the credit-score dip and the approval question. The rate you're quoting assumes you qualify for it. A new loan application and a hard pull nick your score for a few months, and the borrowers who most want to consolidate are often quoted rates far above the 11.40% average — sometimes high enough that there's no saving to find.

What to do with the result

If the total saving is comfortably positive and the new term is no longer than you'd have taken to clear the debt anyway, consolidating is a reasonable move — then freeze or close the old cards so the balances can't rebuild. If the saving is thin, the fee is doing the damage; shop for a lower one, since personal-loan origination fees run the whole 1% to 8% range and some lenders charge nothing.

If the number comes out negative, you don't need a loan at all. Paying your existing balances in avalanche order does the same job — one debt free at a time — with no fee and no new application. Run that comparison before you sign anything.

Common questions

Does debt consolidation save money?

Only when the lower rate saves more interest than the loan's fee costs. At the U.S. average credit card APR of 22.76%, moving to a personal loan near the 11.40% average can save real money — but a fee at the top of the 1%–8% range, or a longer term, can erase the gain. The total-dollar figure, not the monthly payment, tells you which way it went.

Is it better to consolidate or pay the debt off myself?

If you can afford your current payments, paying balances in highest-rate-first order costs nothing and often clears debt as fast. Consolidation earns its fee only when it drops your rate enough to beat that free option, or when a single fixed payment is the thing that keeps you on track.

Does consolidating hurt your credit score?

Short term, a little. A new loan application triggers a hard inquiry and lowers your average account age, so the score usually dips for a few months. Over a longer stretch, paying down revolving balances tends to help, because it lowers your credit utilization.

Why do I have to borrow more than I owe?

Because the origination fee is normally deducted from the loan proceeds. If you owe $6,500 and the fee is 8%, a $6,500 loan hands you less than $6,500 — not enough to clear the debt. To actually pay it off you borrow $6,500 ÷ (1 − 0.08) = $7,065, and the fee is charged on that larger figure.

What's the difference between a consolidation loan and a balance transfer?

A consolidation loan is a fixed-rate installment loan with a set payoff date. A balance transfer moves card debt onto another card, usually at 0% for a promotional window, with a transfer fee instead of an origination fee. The loan suits a longer, steady payoff; the transfer suits a balance you can clear before the promo rate ends.