Debt Consolidation Calculator

Debt consolidation replaces multiple high-interest debts with a single loan at a lower interest rate. The key calculation is whether the new loan actually saves money after accounting for fees and the new term length.

The Core Comparison Formula:

Total cost of current debts = Sum of (Monthly payment × Remaining months) for each debt

Total cost of consolidation loan = Monthly payment × Loan term months + Origination fees

Net savings = Total current cost − Total consolidation cost

Monthly Payment Formula (consolidation loan):

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:

• P = Principal (total debt consolidated)
• r = Monthly interest rate (annual rate / 12)
• n = Loan term in months

Worked Example:

Three existing debts:

• Credit card A: $5,000 at 22% APR, $200/month, 30 months left = $6,000 total
• Credit card B: $3,000 at 19% APR, $150/month, 24 months left = $3,600 total
• Personal loan: $8,000 at 14% APR, $280/month, 36 months left = $10,080 total
• Total current cost: $19,680

Consolidation loan: $16,000 at 9% APR over 48 months

• Monthly payment = $16,000 × [0.0075 × 1.0075^48] / [1.0075^48 − 1] = $398/month
• Total paid = $398 × 48 = $19,104
• Net savings = $19,680 − $19,104 = $576

Practical Tips:

• Savings shrink if you extend the term too long — a 7-year loan at 9% may cost more than a 3-year loan at 15%
• Avoid consolidating secured debt into unsecured debt or vice versa without understanding the implications
• Stop using the paid-off credit cards to avoid accumulating new debt on top of the consolidation loan