How the debt consolidation calculator works
Debt consolidation means taking one new loan, using it to pay off several debts, and then making a single payment. It can save money when the new loan is cheaper. It can also cost more, if fees are high or the term is long. The calculator compares both paths in full.
Path 1: keep your current debts. Each debt keeps its own monthly payment until it is paid off. Interest is the balance × APR ÷ 12 each month. The total cost is everything you pay until the last debt is gone.
Path 2: one consolidation loan. The calculator works out how much you must borrow, your fixed payment and the total you pay, including the origination fee.
Monthly payment: P = L × i ÷ (1 − (1 + i)^−n), with i = rate ÷ 12
Total cost = P × n (+ the fee, if paid in cash)
Savings = current total cost − loan total cost
Why the fee matters
Most personal loans charge an origination fee, often from 0% to 10% of the loan. Lenders usually take it out of the money they send you. So if you need $16,500 to clear your debts and the fee is 5%, you have to borrow $16,500 ÷ 0.95 = $17,368.42. The $868.42 fee then earns interest for the whole term.
That is why the calculator shows a real APR: the yearly rate at which your payments equal the cash you actually get to use. It is the same actuarial method lenders use for the APR on a US loan disclosure (Regulation Z, Appendix J). Always compare this real APR with your current rates, not the headline rate.
Worked example: three debts and a 48-month loan
You have:
| Debt | Balance | APR | Monthly payment |
|---|---|---|---|
| Credit card 1 | $8,500 | 24.99% | $255 |
| Credit card 2 | $4,200 | 27.49% | $130 |
| Personal loan | $3,800 | 15.9% | $140 |
| Total | $16,500 | 23.53% average | $525 |
Paying as you do now, the last debt is gone in 60 months, with $10,633.24 of interest. The total cost is $27,133.24.
A lender offers 11.99% for 48 months with a 5% fee taken from the loan:
- Loan amount: $16,500 ÷ 0.95 = $17,368.42
- Monthly payment: $457.29, which is $67.71 less than now
- Total paid: $457.29 × 48 = $21,950.01
- Real APR with the fee: 14.77%
The loan saves $5,183.23 and you are debt-free a year sooner. Here the loan wins on every count.
Worked example: when a lower payment costs more
Now take a weaker offer for the same debts: 17.99% for 72 months with an 8% fee.
- Loan amount: $16,500 ÷ 0.92 = $17,934.78
- Monthly payment: $408.95, which is $116.05 less than now
- Total paid: $29,444.50
- Real APR with the fee: 21.42%
The payment looks better, but you pay $2,311.26 more than keeping your current debts, and it takes a year longer. The CFPB warns about this: a lower monthly payment can come from a longer term and cost more in total.
How the term changes the result
Same debts, same 11.99% rate and 5% fee, different terms:
| Loan term | Monthly payment | Total paid | Real APR | Saves vs now |
|---|---|---|---|---|
| 36 months | $576.80 | $20,764.70 | 15.59% | $6,368.54 |
| 48 months | $457.29 | $21,950.01 | 14.77% | $5,183.23 |
| 60 months | $386.26 | $23,175.79 | 14.27% | $3,957.45 |
The real APR is highest on the shortest loan, because the fee is spread over fewer months. Yet the shortest loan still saves the most, because you pay interest for less time. Pick the shortest term whose payment you can afford.
The do-it-yourself alternative
You may not need a loan at all. If you keep paying your current total each month and roll each paid-off debt’s payment into the highest-rate debt, your debts shrink faster. In the example above, paying $525 a month this way clears everything in 51 months with $9,911.57 of interest. The calculator shows this figure too, so you can see whether the loan beats your own plan. The debt payoff calculator turns it into a month-by-month plan.
Before you consolidate
- Stop using the cards you pay off. If the balances grow back, you end up with the loan and the card debt.
- Check the fee and the real APR. Use the APR calculator to check any loan offer.
- Watch out for teaser rates. Some offers start low and rise later. A fixed-rate personal loan avoids this.
- Think twice about using your home. Home equity loans can have lower rates, but your home is at risk if you cannot pay. They may also come with closing costs.
- Beware of debt settlement offers. Companies that charge fees up front and promise to cut your debt are not the same as a consolidation loan. The FTC warns about them.
- Compare balance transfer cards. A 0% offer with a 3% to 5% fee can be cheaper if you clear the balance before the promotion ends. Test it with the credit card payoff calculator.
Limits
The calculator assumes fixed rates, on-time payments and no new borrowing. Credit cards charge interest daily and their minimum payments shrink as balances fall, so your real costs may differ slightly. It is a planning tool, not a loan offer. To see a full schedule for a loan you are offered, use the personal loan calculator.