Debt Consolidation Calculator

What this calculator tells you

Debt consolidation means combining several debts into one new loan, usually to get a lower interest rate or a single monthly payment. This calculator compares the interest you pay on your current debts with the interest on a single consolidation loan, including any fee charged to take the loan out.

A consolidation loan can lower your monthly cost and simplify repayment, but it does not always reduce the total you pay. If the new loan runs for longer, the interest can add up to more even at a lower rate. The calculator is designed to show both the monthly effect and the total effect side by side.

How the comparison is worked out

For your current debts, the yearly interest is each balance multiplied by its annual rate, added together. For the consolidation loan, the amount borrowed includes the balances you are repaying and any fee added to the loan. The yearly interest on that larger sum at the new rate is then compared with the current figure. The monthly payment on the new loan is calculated over its term using the standard loan formula.

A worked example

Suppose you owe 10,000 across cards and loans at an average of 22%, which costs about 2,200 a year in interest. A consolidation loan at 12% with a 2% fee would add 200 to the amount borrowed, making 10,200. The first-year interest on that loan is about 1,224. The comparison therefore shows a first-year saving of about 976, before taking account of how long the new loan runs.

Check the term as well as the rate

A lower monthly payment often comes from a longer term. Stretching the same balance over more years can mean paying more interest in total, even if the rate is lower. Compare the total amount paid under each option, not only the monthly figure, and decide whether the lower monthly payment is worth the extra total cost.

Consider whether the new loan is secured against an asset, such as your home. A secured loan may have a lower rate, but missed payments can put that asset at risk. An unsecured loan does not carry that risk but may carry a higher rate.

Limits of the calculation

The calculator assumes all current debts are repaid in full by the new loan, and that the new rate and fee are fixed. Some existing debts carry early repayment charges, and some cards charge a balance transfer fee on top of a loan fee. Your credit score and income will affect the rate you are offered, so the figures are only as good as the offer you actually receive.

Consolidation does not fix the spending that created the debt. If the old cards are used again after they are cleared, the total owed can grow. Set a plan for those accounts before you consolidate.

Using the result

Use the calculator to test whether a specific offer saves money at the rate and fee you have been quoted, and to compare the total cost for different terms. If the saving is small or the total cost rises, a repayment plan on your existing debts may be better. Seek free or low-cost debt advice if you are unsure, because the right choice depends on your full financial position.