Debt Consolidation Calculator

The Basic Concept: Debt consolidation combines multiple debts into a single new loan. Instead of paying five different creditors with five different due dates, interest rates, and minimum payments, you make one payment to one lender. The new loan pays off your existing debts, leaving you with just the consolidation loan to repay.

The Math Behind Consolidation Savings: Consolidation saves money when your new interest rate is lower than the weighted average rate of your current debts. For example:

Before Consolidation:

• Credit Card A: $8,000 at 24% APR ($200/mo minimum)
• Credit Card B: $5,000 at 22% APR ($125/mo minimum)
• Store Card: $3,000 at 28% APR ($90/mo minimum)
• Personal Loan: $4,000 at 15% APR ($120/mo minimum)
• Total: $20,000 | Weighted Avg Rate: 22.4% | Total Minimum: $535/mo

After Consolidation (5-year personal loan at 10% APR):

• Single Loan: $20,000 at 10% APR
• Monthly Payment: $425/mo
• Monthly Savings: $110
• Total Interest (before): ~$12,500 over 5+ years
• Total Interest (after): ~$5,500 over 5 years
• Total Savings: ~$7,000

Key Factors That Determine Savings:

1. Interest Rate Differential: The bigger the gap between your current rates and the consolidation rate, the more you save
2. Loan Term: Longer terms mean lower payments but more total interest; shorter terms save more but cost more monthly
3. Fees: Origination fees (1-8%), balance transfer fees (3-5%), or closing costs reduce your savings
4. Commitment: Consolidation only works if you don't accumulate new debt

1. Personal Loans (Unsecured) The most common consolidation method. You apply for a personal loan, receive funds, pay off existing debts, then repay the personal loan.

Pros:

• Fixed rates typically 8-15% for good credit (670+ FICO)
• Fixed monthly payment and payoff date
• No collateral required
• Quick funding (often 1-3 days)

Cons:

• Origination fees of 1-8% common
• Rates can be high for poor credit (20%+)
• Requires decent credit to get favorable terms

Best For: Consolidating $5,000-$50,000 in credit card debt with fair to good credit

2. Balance Transfer Credit Cards Transfer high-interest credit card balances to a new card offering 0% introductory APR.

Pros:

• 0% APR for 15-21 months
• No interest during promotional period
• Can save thousands if paid off in time

Cons:

• 3-5% transfer fee on each balance
• Rate jumps to 22-28% after promo ends
• Requires good to excellent credit (700+)
• Temptation to use the card for purchases

Best For: Debt you can pay off within the 0% period; disciplined borrowers

3. Home Equity Loans / HELOCs Borrow against your home's equity to pay off unsecured debts.

Pros:

• Lowest rates available (8-10% as of early 2026)
• Interest may be tax-deductible (consult tax advisor)
• Higher borrowing limits
• Longer repayment terms available

Cons:

• Your home is collateral—risk of foreclosure
• Closing costs of 2-5% of loan amount
• Turns unsecured debt into secured debt
• Takes longer to close (2-6 weeks)

Best For: Large debt amounts ($25,000+) when you have significant home equity and stable income

4. Debt Management Plans (DMPs) Work with a nonprofit credit counseling agency who negotiates with your creditors.

Pros:

• Often reduces interest rates to 6-9%
• Waives late fees and over-limit fees
• Single monthly payment to agency
• No new loan or credit check required

Cons:

• Takes 3-5 years to complete
• Monthly fee ($25-50)
• Credit cards closed during the program
• Not a loan—still paying original creditors

Best For: People struggling to manage debt who need professional guidance

5. 401(k) Loans Borrow from your own retirement account.

Pros:

• Low rates (prime + 1-2%)
• No credit check
• Interest paid to yourself

Cons:

• Risk if you leave your job (loan due in 60-90 days)
• Miss out on investment growth
• 10% penalty + taxes if can't repay
• Reduces retirement security

Best For: Last resort only; generally not recommended

Advantages of Consolidation:

1. Lower Interest Rates The primary benefit. Moving from 24% credit card rates to an 10% personal loan saves substantial money.

2. Simplified Payments One payment, one due date, one creditor. Reduces the chance of missed payments and late fees.

3. Fixed Payoff Date Unlike minimum payments that stretch forever, a consolidation loan has a set end date.

4. Potential Credit Score Improvement Paying off credit cards improves your credit utilization ratio (a major scoring factor).

5. Psychological Relief Knowing exactly when you'll be debt-free provides motivation and reduces financial stress.

6. Lower Monthly Payment Even at the same rate, spreading payments over a longer term reduces monthly obligations.

Disadvantages and Risks:

1. Fees Can Negate Savings A 5% origination fee on a $20,000 loan costs $1,000 upfront. Balance transfer fees add up quickly.

2. Longer Terms Mean More Interest A lower payment over 7 years may cost more total than higher payments over 4 years.

3. Doesn't Address Root Causes If overspending caused the debt, consolidation without behavior change leads to more debt.

4. Risk of Debt Recycling 70% of people who consolidate credit card debt end up with new credit card balances within 2 years.

5. May Hurt Credit Initially New credit application creates a hard inquiry; closing old accounts can affect credit age.

6. Secured Debt Risk Home equity consolidation puts your house at risk for previously unsecured debt.

7. Qualification Requirements The best rates require good credit—the people who need consolidation most may not qualify.

The Bottom Line: Consolidation is a tool, not a solution. It works best for people who:

• Have a plan to avoid new debt
• Understand the math of their specific situation
• Have addressed the behaviors that led to debt

Consolidation Makes Sense When:

1. The Math Works in Your Favor Your consolidation rate must be meaningfully lower than your current weighted average rate, AND total cost (including fees) must be less than continuing with current debts.

2. You Have Good Credit A credit score of 670+ typically gets you rates that make consolidation worthwhile. At 700+, you may qualify for 0% balance transfer cards.

3. You're Committed to Staying Debt-Free You won't run up new credit card balances after consolidating. You've addressed the spending habits that caused the debt.

4. Your Income Is Stable You can reliably make the consolidation loan payments for the full term.

5. You Have Multiple High-Rate Debts The more high-rate debts you have, the more consolidation helps simplify and potentially save.

Consolidation Probably Won't Help When:

1. Your Credit Score Is Below 650 You likely won't qualify for rates better than your current debts. Consider a DMP instead.

2. Total Debt Is Under $5,000 The fees and effort may not be worth it. Aggressive payoff (Avalanche method) may work better.

3. You'll Take Longer to Pay Off Extending repayment from 3 years to 7 years to lower payments usually costs more in total.

4. You Haven't Fixed Spending Habits If you'll just rack up new debt, consolidation makes your situation worse, not better.

5. You're Close to Paying Off If you're 12-18 months from debt-free with current payments, fees may exceed savings.

6. The Rate Isn't Significantly Better Moving from 22% to 18% saves less than you think. Aim for at least 5+ percentage points improvement.

The 36% Rule: Consumer advocates consider any loan above 36% APR predatory. If your consolidation option exceeds this, it's almost certainly a bad deal.

Red Flags in Consolidation Offers:

• Upfront fees before any service is provided
• Pressure to sign immediately
• Promises to "fix" your credit
• Vague about total costs and terms
• Not disclosing APR clearly

Current Rate Environment (Early 2026): After three Federal Reserve rate cuts totaling 75 basis points in late 2025, consolidation rates have come down from their 2023-2024 peaks but remain elevated compared to the 2020-2021 lows.

Personal Loan Rates by Credit Score:

Balance Transfer Card Offers (2026):

• Intro APR: 0% for 15-21 months
• Balance Transfer Fee: 3-5%
• Regular APR After Intro: 22-28%
• Credit Score Needed: 700+ for best offers

Home Equity Loan/HELOC Rates:

Debt Management Plan Rates:

• Creditor-negotiated rates: 6-9% typical
• Monthly service fee: $25-50
• Setup fee: $0-75

Rate Comparison Context:

The Rate Gap: The ~12-15 percentage point difference between credit card rates and personal loan rates creates significant consolidation opportunity for qualified borrowers.

1. Debt Avalanche Method Pay minimums on all debts, put extra money toward highest-rate debt first.

• Saves most money mathematically
• No fees or new accounts
• Requires discipline and patience

2. Debt Snowball Method Pay minimums on all debts, put extra money toward smallest balance first.

• Quick wins build motivation
• Higher completion rates than Avalanche
• Costs slightly more in interest

3. Balance Transfer (Instead of Full Consolidation) Transfer only your highest-rate balances to 0% cards.

• Targeted approach
• Lower fees than full consolidation
• Requires disciplined payoff during promo

4. Negotiate Directly with Creditors Call your credit card companies and ask for lower rates.

• Success rate: 70-80%
• Average reduction: 5-6 percentage points
• No fees, no new accounts
• Tip: Mention competing offers

5. Credit Counseling / DMP Work with NFCC-certified nonprofit counselor.

• Lower rates without a new loan
• Professional guidance included
• Structured 3-5 year plan
• Education to prevent future debt

6. Debt Settlement Negotiate to pay less than you owe (usually with a company or attorney).

• Can reduce principal owed
• Severely damages credit (7 years)
• Tax consequences (forgiven debt is income)
• High fees (15-25% of debt)
• Should be last resort before bankruptcy

7. Bankruptcy Legal process to discharge or restructure debts.

• Chapter 7: Liquidation, wipes unsecured debt
• Chapter 13: Reorganization, 3-5 year payment plan
• Significant credit impact (7-10 years)
• Should be last resort with attorney guidance

Choosing the Right Path:

• $5,000 or less: Avalanche/Snowball method, or negotiate rates
• $5,000-$25,000: Personal loan consolidation or balance transfer
• $25,000+: Consider home equity if available, or personal loan
• Struggling to make minimums: Credit counseling/DMP
• Unable to pay anything: Consult bankruptcy attorney