💳 Debt Consolidation Calculator
📘 How Debt Consolidation Works
Debt consolidation involves combining multiple debts into a single loan, typically with a lower interest rate. This can simplify your payments and potentially save you money on interest charges.
This calculator compares your current debt situation with a potential consolidation loan:
- Monthly Payment Calculation = P × [r(1+r)^n] ÷ [(1+r)^n - 1]
- Where: P = Principal, r = Monthly interest rate, n = Number of payments
- Total Interest = (Monthly Payment × Number of Payments) - Principal
Debt consolidation works best when the new interest rate is significantly lower than your current average rate.
💡 Debt Consolidation Strategies
- Only consolidate if the new interest rate is lower than your current average rate
- Consider balance transfer credit cards with 0% introductory APR offers
- Look into personal loans from banks, credit unions, or online lenders
- Avoid extending your loan term too much - focus on paying off debt quickly
- Check for origination fees or other costs associated with consolidation loans
- Don't accumulate new debt after consolidating - change spending habits
🤔 Frequently Asked Questions
What types of debt can be consolidated?
Most unsecured debts can be consolidated, including credit card debt, personal loans, medical bills, and some student loans. Secured debts like mortgages and auto loans typically cannot be consolidated with unsecured debt.
Will debt consolidation hurt my credit score?
Initially, your score may dip slightly due to the credit inquiry and new account. However, over time, consolidation can help your score by reducing your credit utilization and making payments more manageable, leading to consistent on-time payments.
What's the difference between debt consolidation and debt settlement?
Debt consolidation combines multiple debts into one new loan, while debt settlement involves negotiating with creditors to pay less than the full amount owed. Debt settlement typically has more negative impact on your credit score.
Are there fees associated with debt consolidation?
Some consolidation options have fees, such as balance transfer fees (typically 3-5% of the transferred amount) or loan origination fees (1-8% of the loan amount). Always factor these into your calculations.
When is debt consolidation not a good idea?
Debt consolidation may not be beneficial if: the new interest rate isn't significantly lower, you can't afford the new monthly payment, you have trouble controlling spending habits, or if the fees outweigh the interest savings.