Debt Consolidation Calculator

What Is Debt Consolidation?

Debt consolidation is the process of combining multiple debts — such as credit cards, personal loans, medical bills, and other obligations — into a single new loan. The goal is typically to secure a lower interest rate, reduce your monthly payment, simplify your finances to just one payment, or achieve a combination of these benefits.

How Does Debt Consolidation Work?

When you consolidate debt, you take out a new loan equal to the total balance of your existing debts. You use this loan to pay off all your individual debts, leaving you with just one monthly payment at (ideally) a lower interest rate. Common consolidation options include:

• Personal loans — Fixed rate, fixed term, predictable payments
• Balance transfer credit cards — 0% introductory APR for 12-21 months
• Home equity loans/HELOCs — Lower rates using your home as collateral
• Debt management plans — Negotiated rates through credit counseling agencies

The Key Formula

When Does Debt Consolidation Make Sense?

• Lower interest rate available: If you qualify for a rate below your weighted average, you'll save on interest.
• Multiple high-rate debts: Credit cards averaging 20%+ APR can often be consolidated at 7-12%.
• Simplification needed: Managing 5+ separate payments increases the risk of missed payments and late fees.
• Steady income: You can reliably make the new monthly payment for the full loan term.
• Good credit score: Scores of 670+ typically qualify for competitive consolidation rates.

When to Avoid Debt Consolidation

• Higher effective rate: If the new loan rate exceeds your weighted average, you'll pay more.
• Extending the term too much: A longer term means lower payments but potentially more total interest.
• Origination fees: Some loans charge 1-8% in fees that increase the effective cost.
• Spending habits unchanged: Without addressing the root cause, you may accumulate new debt on top of the consolidation loan.

Frequently Asked Questions