A consolidation loan only helps if it costs less than what you’re doing now, fees included. Enter your current debt and a loan offer to compare the total cost of each, side by side, and see the highest loan rate that would still save you money.
The loan would save about $4,562 in interest and fees, with a payment $73 a month higher.
Break-even rate: With a 5% fee and a 36-month term, the loan costs less than your current path as long as its APR is under about 27.8%. Above that, keeping your current payments costs less. Use it to compare real loan offers.
Keep paying as you are
- Monthly payment
- $450
- Debt-free in
- 4 years 4 months
- Total interest
- $8,394
Consolidation loan
- Monthly payment
- $523
- Debt-free in
- 3 years
- Interest
- $3,083
- Fee
- $750
- Interest plus fee
- $3,833
The fee is added to the loan balance here. Some lenders subtract it from the money you receive instead, which works out about the same. Offers depend on your credit, and the savings only hold if you don't run the paid-off cards back up. See debt consolidation for the risks.
For the full picture, including your budget and which way out of debt fits, run the Debt Audit.
Estimates based on the numbers you entered. Not financial advice. How the math works.
How it works
- Your current path: the calculator pays down your balance at your average APR with the monthly payment you make now, and adds up the interest until it’s paid off.
- The loan: it adds the origination fee to the amount borrowed, then finds the level monthly payment that pays the loan off over the term you chose, and adds up that interest.
- The comparison: savings = interest on your current path − (loan interest + the fee).
- The break-even rate: the loan APR at which both cost the same, with your fee and term. Any offer below it costs less than your current path, so you can check real offers against one number.
Lenders often charge origination fees and other costs on personal loans, which the loan disclosure lists.[1] Some add the fee to the loan and others subtract it from the money you receive; either way it’s a cost, so the calculator counts it. The default loan rate and fee are the same ones the Debt Audit assumes, explained on How the audit works. Replace them with a real offer if you have one.
A worked example
Say you owe $15,000 at an average of 22% and pay $450 a month.
- Keep paying as you are: debt-free in 4 years 4 months, with $8,394 in interest.
- A 36-month loan at 12% with a 5% fee: the $750 fee is added, so the loan is $15,750. The payment is $523 a month, and interest totals $3,083. With the fee, that's $3,833.
- The difference: the loan saves about $4,562, with a payment $73 a month higher.
- The break-even rate: with the same fee and term, the loan stays cheaper as long as its APR is under about 27.8%.
Before you consolidate
- A lower payment isn’t the same as a lower cost. A longer term can shrink the monthly payment while raising the total interest.[2]
- Your rate depends on your credit. If debt has already hurt your credit score, offers may not be low enough to save money.[2]
- The savings disappear if the paid-off cards fill back up.
- Using home equity puts your home at risk if you can’t repay.[2]
The debt consolidation guide covers the options, costs and red flags in full.
Does consolidation fit your whole situation?
The Debt Audit looks at each of your debts and your budget, and only points to consolidation when its estimate, fees included, shows a real saving. It takes about five minutes, and nothing you enter is stored or sent.
Run the Debt AuditFrequently asked questions
How do I know if debt consolidation will save me money?
Compare the total cost, not the monthly payment: all the interest you’d pay on your current path against the loan’s interest plus its fees. The calculator does exactly that. If the loan’s total is lower, it saves money, as long as you don’t add new debt.
What if my debts have different interest rates?
Use a balance-weighted average. The Debt Audit calculates it for you from each debt’s balance and rate, and runs its own consolidation estimate across your individual debts.
Is a longer loan term better?
A longer term lowers the monthly payment but usually raises the total interest. Try a few terms above to see the tradeoff.
What if the calculator says consolidation costs more?
Then the loan as entered wouldn’t save money. The break-even rate under the result shows how low the APR would need to be. A smaller fee or a shorter term might also change that. Other paths, like paying it off yourself or credit counseling, may fit better.
Sources
- Do personal installment loans have fees? Consumer Financial Protection Bureau.
- What do I need to know about consolidating my credit card debt? Consumer Financial Protection Bureau.