How to use this calculator
- Enter each debt you plan to consolidate with its balance, APR and the monthly amount you currently pay.
- Enter the loan offer: interest rate, term and origination fee. Prequalified offers from lenders give you the most realistic numbers.
- Choose how the fee is charged. Most personal loans deduct it from the proceeds, so you must borrow more to pay off the same debts.
- Compare. The results show your new payment, the true APR including the fee, and the difference in total cost and payoff time.
How debt consolidation works
Debt consolidation replaces several debts with one new loan — usually a fixed-rate personal loan — that you use to pay the old balances off. You end up with one payment, one due date, a fixed rate and a guaranteed payoff date. It helps most when the new rate is meaningfully lower than the rates on your current debts, which is common for credit cards charging 20%–30% APR.
Consolidation doesn’t reduce the amount you owe; it changes the price and the schedule. The savings come from a lower rate, and they can be wiped out by fees or by stretching the loan over many more years.
Origination fees and true APR
Many personal loans charge an origination fee of about 1% to 10%, taken out of the loan before you receive the money. That makes the loan more expensive than its interest rate suggests. The APR disclosed under the Truth in Lending Act includes this fee; this calculator computes it the same way — as the rate at which your payments equal the cash you actually receive.
Worked example
Alex has three credit cards totalling $15,000 at an average of about 24.4% APR, paying $470 a month. At those payments, the cards take 4 years 10 months to clear and cost $9,607 in interest.
A lender offers a 48-month loan at 12.5% with a 5% origination fee deducted from the proceeds. To net $15,000, Alex borrows $15,789 (a $789 fee). The payment is $419.68 a month — $50 less than today — and the total interest is $4,355. Including the fee, the loan costs $5,145, saving about $4,462, and Alex is debt-free 10 months sooner. The fee raises the true APR from 12.5% to about 15.3%.
Consolidation options compared
| Option | Typical cost | Best for | Watch out for |
|---|---|---|---|
| Personal loan | Fixed APR; fee 0%–10% | Fixed payoff date, no collateral | Origination fees; higher rates with fair credit |
| 0% balance transfer card | 3%–5% fee | Balances you can clear in 12–21 months | Regular APR after the promo — see the balance transfer calculator |
| HELOC or home equity loan | Lower rates; closing costs possible | Homeowners with equity and stable income | Your home secures the debt |
| Debt management plan | Small monthly fee | Reducing card APRs through a nonprofit counselor | Cards are usually closed |
| 401(k) loan | Interest paid to yourself | Last resort | Lost growth; due quickly if you leave your job |
Pitfalls to avoid
- Running the cards back up. The biggest risk: consolidating, then spending on the freshly cleared cards. Consider lowering limits or removing saved card details.
- Focusing only on the payment. An 84-month loan can cut your payment and still cost more in total.
- Ignoring prepayment terms. Most personal loans have no prepayment penalty — confirm it so you can pay early.
- Debt settlement confusion. Debt settlement companies negotiate to pay less than you owe, often damaging your credit and charging large fees. That is not the same as consolidation.
Frequently asked questions
Does debt consolidation save money?
What is an origination fee?
Will a consolidation loan hurt my credit score?
Is a lower monthly payment always better?
Can I use a HELOC or home equity loan to consolidate debt?
What credit score do I need for a debt consolidation loan?
Sources
- What do I need to know about consolidating my credit card debt? — Consumer Financial Protection Bureau
- How to get out of debt — Federal Trade Commission
- Regulation Z §1026.22 — determination of annual percentage rate — Consumer Financial Protection Bureau