How it works
Debt consolidation replaces several high-rate balances with one amortising loan at a lower rate over a fixed term. The comparison that matters is total cost over the same number of months — not just the monthly payment, because stretching term always lowers payment but can raise total interest. This engine amortises both paths over identical terms so the rate difference is isolated. On the defaults — $20,000 total debt, 22% blended current APR, 10.5% consolidation loan rate, 48-month term, no origination fee — the current-rate path payment is $630.12 per month for a total of $30,246 paid. The consolidation path payment is $512.07 per month for $24,579 total. Total interest saved is $5,666.59. The monthly relief ($118) is real, but the total saved is the honest metric — a consolidation loan only works when its rate is meaningfully below your weighted average card rate and you stop adding new revolving debt. The CFPB warns that consolidation without behaviour change often doubles debt load (consumerfinance.gov). Pair with credit card payoff calculator for single-card timelines, balance transfer calculator for 0% promo offers on smaller balances, and debt-to-income ratio calculator before applying for the consolidation loan.
Formula
Both paths: monthly = P × r(1+r)^n / ((1+r)^n − 1)
P = balance (consolidation path may add origination fee to principal)
r = APR/12, n = term in months
Savings = current path total paid − new loan total paid
Worked example — $20k · 22% vs 10.5% · 48 months
Current payment = $630.12/mo ($30,246 total)
New payment = $512.07/mo ($24,579 total)
Interest saved = $5,666.59
Tips
- Compare total paid, not monthly payment — a longer term lowers payment but can erase savings.
- Cut up or freeze the cards before signing; consolidation plus fresh charges is the classic trap.
- Run 36 vs 48 vs 60 months — shorter terms raise payment but usually increase total savings.
- Balance-transfer 0% offers beat consolidation loans for balances you can clear within the intro window.
- Shop multiple lenders; origination fees financed into the loan reduce savings — enter them in the fee field.
Frequently asked questions
- How much does consolidation save on the defaults?
- About $5,666.59 in total interest over 48 months, dropping the monthly payment from $630.12 to $512.07. Both paths assume the same $20,000 balance and 48-month payoff horizon.
- Is debt consolidation a good idea?
- When the new rate is well below your current blended rate and you have stopped adding card debt. It reduces interest and gives one deadline. It hurts when used to lower payment while continuing to revolve — the balance has not gone anywhere.
- How does the calculator estimate the current path?
- It amortises the full $20,000 at 22% over 48 months — same term as the consolidation loan. Your real minimum payments may stretch longer and cost more; this keeps the comparison fair.
- What rate can I expect on a consolidation loan?
- Credit-dependent: excellent credit often sees 8–13%, fair credit 15–25%. If the quoted rate is not well below your card APR, run the numbers here before proceeding — savings may be negligible.
- What about origination fees?
- Enter the fee percentage and the engine finances it into the new loan principal before computing payment and total cost. A 5% fee on $20,000 adds $1,000 to the balance and reduces net savings.