Debt Consolidation Calculator
About the Debt Consolidation Calculator
This calculator helps you evaluate whether consolidating your debts into a single loan makes financial sense. Compare your current multiple debt payments with a potential consolidation loan to see potential savings or costs.
How to Use This Calculator
- Enter Current Debts: Input details for each debt including balance, interest rate, and monthly payment.
- Add Additional Debts: Click "Add Another Debt" for each debt you want to consolidate.
- Specify Consolidation Terms: Enter the proposed consolidation loan's interest rate, term, and fees.
- Review Results: Compare monthly payments, total costs, and potential savings.
Understanding Debt Consolidation
Advantages
- Single monthly payment
- Potentially lower interest rate
- Fixed repayment schedule
- Simplified debt management
Disadvantages
- Possible longer repayment term
- Origination fees
- Potential for higher total cost
- May require good credit score
Requirements
- Stable income
- Qualifying credit score
- Manageable debt-to-income ratio
- Verifiable employment
Best Practices
- Compare multiple lenders
- Read all terms carefully
- Consider total cost impact
- Maintain emergency savings
Important Considerations
Total Cost Impact
While a lower monthly payment might be attractive, be sure to consider the total cost over the entire loan term. A longer repayment period often means paying more in total interest.
Credit Score Effects
Consolidating debt typically requires a hard credit check and opening a new credit account, which may temporarily impact your credit score. However, successful debt management can improve your score over time.
Behavior Change
Debt consolidation is most successful when combined with changes in spending habits. Without addressing the root cause of debt, you might risk accumulating new debt while paying off the consolidation loan.
Secured vs. Unsecured
Consider whether the consolidation loan requires collateral. While secured loans often offer lower rates, they put your assets at risk if you default on the loan.
Frequently Asked Questions
Is debt consolidation right for me?
Debt consolidation might be beneficial if you have multiple high-interest debts, a good credit score to qualify for a lower rate, and a stable income to make regular payments. This calculator can help you evaluate if consolidation will save you money.
What types of debt can I consolidate?
Most unsecured debts can be consolidated, including credit cards, personal loans, medical bills, and store credit. However, certain types of debt like mortgages and federal student loans often have better options available.
How does the origination fee affect my loan?
An origination fee increases your initial loan amount and total cost. For example, a 3% fee on a $10,000 consolidation loan means you'll need to borrow $10,300 to receive $10,000 for debt payoff.
What if I have a low credit score?
A lower credit score might result in higher interest rates or loan denial. Consider improving your credit score before applying, or explore alternatives like credit counseling or debt management programs.
Tips for Successful Debt Consolidation
Compare Multiple Offers
Shop around and compare offers from different lenders. Look at interest rates, fees, terms, and total costs to find the best deal.
Create a Budget
Develop a realistic budget that includes your new consolidated payment and build an emergency fund to avoid taking on new debt.
Address Root Causes
Identify and address the spending habits or circumstances that led to the debt to prevent future debt accumulation.
Consider Alternatives
Explore other options like balance transfer cards, debt management plans, or accelerated repayment strategies before committing to consolidation.