Understanding your consolidation comparison
The table below summarizes when consolidation tends to reduce total interest cost versus when it can increase it, based on how the new loan's rate and term compare with the current arrangement.
| Scenario | Typical effect on total interest |
|---|---|
| New APR is meaningfully lower and term is similar or shorter | Consolidation generally reduces total interest |
| New APR is lower but the new term is much longer | A longer term can offset or reverse the rate benefit, sometimes increasing total interest despite the lower rate |
| Current payment is at or below the current monthly interest charge | The current debt is not amortizing (see the result verdict below) — the balance would never fall under the current payment, making the comparison especially relevant |
- This calculator does not include consolidation loan origination fees, balance transfer fees, or closing costs, which reduce the net benefit of consolidating and should be added to the new loan's cost when comparing offers.
- If the current combined monthly payment does not exceed the monthly interest accruing on the current balance, the current debt does not amortize under the entered numbers — the calculator flags this case directly rather than simulating an indefinite payoff.
- A lower monthly payment does not always mean lower total cost; extending the repayment term can increase total interest even at a reduced rate, which is why this calculator reports total interest under both paths rather than payment size alone.
What is debt consolidation?
Debt consolidation combines multiple debts — such as several credit cards or personal loans — into a single new loan, ideally at a lower interest rate or with a more manageable single monthly payment. The Consumer Financial Protection Bureau (CFPB) describes consolidation loans as a tool that can simplify repayment and potentially reduce interest cost, but cautions that the benefit depends entirely on the new loan's rate, term and fees compared with the debt being replaced.
This calculator compares two payoff paths for the same total debt: continuing at the current average APR and current combined monthly payment until the balance is paid off, versus a new consolidation loan at a stated APR and fixed term. It reports the total interest under each path so the dollar difference — the actual savings or cost of consolidating — is explicit rather than assumed.
Consolidation does not reduce the amount owed; it restructures how it is repaid. A lower monthly payment achieved by extending the term can increase total interest paid even when the new rate is lower, which is why comparing total interest, not just the monthly payment, is the more complete comparison.
How to use this debt consolidation calculator
- Enter the total debt balance you are considering consolidating.
- Enter the current average APR across that debt.
- Enter the current combined monthly payment you make toward that debt.
- Enter the APR quoted for the new consolidation loan.
- Enter the term (in years) of the new consolidation loan.
- Read the new monthly payment, the interest saved (or added) by consolidating, and the total interest under each path.
The formula behind consolidation savings
The current path is simulated month by month: each month, interest accrues on the outstanding balance at the current APR, and the current combined payment is applied, with the remainder reducing principal, until the balance reaches zero. This produces the actual payoff time and total interest under the existing arrangement.
The new consolidation loan's payment is calculated with the standard amortization formula at the new APR over the new term, and its total interest is total payments made minus the original debt amount. Interest saved is the current path's total interest minus the new loan's total interest — a positive number means consolidating saves interest under the assumptions entered; a negative number means it costs more in total interest.
Common mistakes
- Focusing only on the lower monthly payment a consolidation loan offers, without checking whether a longer term increases total interest paid over the life of the new loan.
- Ignoring origination fees, balance transfer fees or closing costs on the new loan, which reduce or can eliminate the interest savings this calculator's headline comparison shows.
- Consolidating debt while continuing to add new balances to the accounts that were paid off, which can result in owing more overall than before consolidating.
- Assuming a lower average APR always means lower total interest — the new loan's term length interacts with the rate to determine the actual total interest cost.
- Not comparing at least two or three actual loan offers before consolidating, since APR, term and fees vary significantly between lenders for the same borrower.
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Does debt consolidation reduce the amount I owe?
No. Debt consolidation restructures how existing debt is repaid — typically by replacing multiple debts with a single new loan — but it does not reduce the principal amount owed. Any interest savings come from a lower rate, a different term, or both, applied to the same underlying balance.
Can debt consolidation increase my total interest cost?
Yes, if the new loan's term is significantly longer than the time it would have taken to pay off the current debt, even a lower interest rate can result in more total interest paid, because interest accrues over more months. Comparing total interest under both paths, not just the new monthly payment, shows whether this is the case for a specific set of numbers.
What does it mean if the calculator says the current payment is too low?
If the current combined monthly payment does not exceed the interest accruing each month on the current balance at the current APR, the balance would never be paid down under that payment — it is not amortizing. This calculator flags that situation directly, since it is a scenario in which comparing to a consolidation loan is especially relevant.
What fees does this calculator include?
This calculator computes interest under the current payoff schedule and the new consolidation loan's amortized payment and interest; it does not include origination fees, balance transfer fees, or closing costs on the new loan. Those fees should be added to the new loan's cost when comparing actual offers.
Is debt consolidation the same as debt settlement?
No. Debt consolidation replaces existing debt with a new loan that is fully repaid over its term; the total amount owed is not reduced. Debt settlement is a different process in which a creditor agrees to accept less than the full balance owed, which the CFPB notes typically has different, and often more serious, credit and tax consequences than consolidation.
Kaynaklar
- Consumer Financial Protection Bureau (CFPB). Debt consolidation loans: what to know before you borrow. consumerfinance.gov.
- Consumer Financial Protection Bureau (CFPB). Should I consolidate my credit card debt? consumerfinance.gov.
- Federal Trade Commission (FTC). Coping with debt: understanding consolidation and settlement options. consumer.ftc.gov.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance (13th ed.). McGraw-Hill, 2020. Chapter 2: How to Calculate Present Values.