How to work out whether debt consolidation saves money
Take the debts in the answer above, and one new loan for everything owed at 11.00% a year over 60 monthly payments, with a $471 arrangement fee.
- First, the debts as they are. Every debt runs on its own payment, and nothing moves across when one clears. Worked month by month, with each month's interest rounded to the cent, the last is cleared after 6 years and 10 months, by which time $25,386.76 has been paid. $6,400 + $1,800 + $7,500 = $15,700 owed $160 + $55 + $260 = $475 a month $25,386.76 − $15,700 = $9,686.76 interest
- Divide the annual rate by twelve to get the rate for one month. It does not come out exactly, so the figure below is rounded; the calculator keeps the exact twelfth. 11.00% ÷ 12 ≈ 0.9167% a month
- Put it into the standard loan payment formula, where P is the amount borrowed, r the monthly rate and n the number of monthly payments. P × r ÷ (1 − (1 + r)^−n) = $15,700 × 0.9167% ÷ (1 − (1 + 0.9167%)^−60) = $341.36
- This calculator rounds each month's interest to two decimal places and uses the smallest payment that brings the balance to exactly zero after 60 payments. Here that is the same figure: $341.36 a month.
- In the first month the interest is the balance times the annual rate, divided by twelve and rounded to two decimal places, and the rest of the payment repays the loan. $15,700 × 11.00% ÷ 12 = $143.92 interest $341.36 − $143.92 = $197.44 repaid $15,502.56 still owed
- Every month repeats that on a smaller balance, and the last payment, $341.06, only clears what is left. Over 60 payments you pay $20,481.30 in all, and everything above the amount borrowed is interest. $20,481.30 − $15,700 = $4,781.30 interest
So consolidating takes the payment from $475 to $341.36 a month, $133.64 less, and the interest from $9,686.76 to $4,781.30, $4,905.46 less: the two comparisons in the answer, and here both go down. The $471 fee is in neither figure: it comes out of what the lender advances, which leaves $471 of the old balances still to clear.
Two questions, and most calculators answer only one
Consolidating debts into a single loan almost always lowers the monthly payment. That is what it is sold on and it is usually true, because the new loan is written over a longer term than the debts it replaces.
The question that matters as much is what it costs in total. Stretching the same balance over more months means paying interest for more months, and a lower rate does not automatically make up for it. A page that shows the new payment and stops has answered the easy half.
So this one shows both, side by side, and says in words which way each went. Sometimes the answer is that consolidating is straightforwardly better. Often it is that the payment falls and the total rises, and that can still be the right decision if the lower payment is what makes the plan survivable. What it should not be is a surprise.
What the comparison assumes
Keeping things as they are means every debt running on the payment you make now, with nothing rolling over when one of them clears. That is the conservative baseline and it is what actually happens to most people: a card that clears frees up money that goes somewhere else. Rolling the freed payment into the next debt is a better strategy and it belongs on the debt payoff page, which is built for it.
The consolidation side is one fixed-rate loan for the whole of what is owed, repaid over the term you choose.
The fee comes out of the money, not the balance
An arrangement fee is generally deducted from what the lender advances rather than added to what you owe. Borrow exactly the total of the debts and the fee means you end up short by that much, with a small balance left on an old account at its old rate.
It is a small thing that undoes the whole exercise, so the page shows what is actually advanced next to what is owed. Either borrow the extra or plan to find it.
The part arithmetic cannot see
The comparison assumes the old accounts are closed and stay closed. A consolidation loan that clears three cards, followed by the cards filling up again, leaves you with the loan and the cards, which is materially worse than having done nothing at all.
This is the most common way consolidation goes wrong and no calculator can model it. It is worth being honest with yourself about before signing rather than afterwards.
Common questions
Is this the same as a loan consolidation calculator?
Yes. Debt consolidation and loan consolidation describe the same act, and this page answers both. Student loan consolidation in the United States is a different and more specific thing, with its own rules, and is not what this page models.
Why does my total interest go up at a lower rate?
Because the term got longer. Interest is a rate applied over time, and adding years can outweigh a lower rate. The page prints both totals so the trade is visible rather than assumed.
Should I consolidate?
It helps most when the new rate is much lower than the old ones, when the term is not much longer, and when the accounts being cleared are closed for good. It helps least when it is used to make an unaffordable situation feel affordable for a while.
What about a balance transfer instead?
A promotional balance transfer can beat a consolidation loan outright if the balance is cleared before the promotional rate ends, and is usually worse if it is not. That is a different calculation with a cliff in the middle of it, and this page does not model it.
Is anything I type stored?
No. The calculation happens on the server as part of rendering the page, nothing is written down, and the access log for this site drops the query string precisely so that the numbers you enter are never recorded.
Sources
Both sides of the comparison are arithmetic on figures you supply. These are the documents that define the rate this page does not quote.
How the payment is worked out
Keeping things as they are runs every debt on its own payment, with nothing rolling over when one of them clears, which is the honest baseline. Consolidating is a single fixed-rate loan for the whole of what is owed, on the same integer schedule every loan page here uses.
The fee is taken out of the advance rather than added to the balance, which is the convention used across this site. Where a lender adds it to the loan instead, put the total of debts plus fee into the balances.