Finance & Business
Debt Consolidation Calculator
Compare your current debts with a consolidated loan to see potential savings and make informed financial decisions.
Enter your debt details to see potential savings with debt consolidation
Related to Debt Consolidation Calculator
The Debt Consolidation Calculator helps you evaluate whether combining multiple debts into a single loan could save you money and simplify your finances. It compares your current debt situation with a potential consolidation loan by analyzing several key factors: the balance of each debt, their respective interest rates, and your current monthly payments. The calculator then computes a consolidated scenario based on your desired loan term and the offered interest rate.
Calculation Method
The calculator uses standard financial formulas to determine monthly payments, total interest, and payoff time. For the consolidated loan, it calculates the monthly payment using the amortization formula: PMT = P[r(1 + r)^n]/[(1 + r)^n - 1], where P is principal, r is monthly interest rate, and n is the number of payments.
Visual Comparison
The interactive graph shows how both your current debts and the consolidated loan balance would decrease over time, helping you visualize the potential benefits of consolidation. The steeper the line's decline, the faster you're paying off the debt.
The calculator provides a comprehensive comparison between your current debt situation and the potential consolidated loan. Understanding these results helps you make an informed decision about whether debt consolidation is right for you. The results are broken down into three main sections: current debts, consolidated loan, and potential savings.
Monthly Payment Comparison
A lower monthly payment with the consolidated loan could improve your monthly cash flow, but be sure to consider the total interest paid over the loan term. Sometimes a lower monthly payment might result in paying more interest overall if the loan term is significantly longer.
Total Interest Savings
This represents the difference between the total interest you would pay on your current debts versus the consolidated loan. A positive number indicates potential savings through consolidation. Consider this alongside the time to payoff to evaluate the overall benefit.
Time to Payoff
The calculator shows how long it will take to pay off your debts under both scenarios. A shorter payoff time with the consolidated loan is generally beneficial, but should be weighed against other factors like monthly payment affordability.
1. When is debt consolidation a good idea?
Debt consolidation is typically beneficial when you can secure a lower interest rate than your current debts, simplify multiple payments into one, and maintain or reduce your total payoff time. It's particularly useful when you have high-interest debts like credit cards and can qualify for a lower-rate consolidation loan.
2. How does consolidating debt affect my credit score?
Initially, applying for a consolidation loan may cause a small, temporary dip in your credit score due to the hard inquiry. However, if you make regular payments on the consolidated loan and avoid accumulating new debt, consolidation can potentially improve your credit score over time by simplifying your payment structure and lowering your credit utilization ratio.
3. What types of debt can be consolidated?
Most unsecured debts can be consolidated, including credit card debt, personal loans, medical bills, and store credit accounts. Secured debts like mortgages and car loans typically aren't included in debt consolidation. Student loans can be consolidated but often through specific government programs rather than traditional debt consolidation loans.
4. Should I close my credit cards after consolidating debt?
It's generally not recommended to close credit cards after consolidation, as this can negatively impact your credit score by reducing your available credit and potentially shortening your credit history. Instead, consider keeping the accounts open with zero balances, which helps maintain a lower credit utilization ratio. If you're concerned about overspending, you might store the cards securely rather than carrying them with you.
5. What is the scientific source for this calculator?
This calculator is based on standard financial mathematics and amortization principles widely used in the banking and financial industry. The core calculations use the time value of money formulas established in financial mathematics, specifically the standard loan amortization formula: PMT = P[r(1 + r)^n]/[(1 + r)^n - 1]. This formula is derived from the fundamental principles of compound interest and is documented in financial textbooks such as "Fundamentals of Corporate Finance" by Ross, Westerfield, and Jordan. The methodology for calculating total interest and loan payoff times follows the standard practices outlined by financial institutions and regulatory bodies, including the Financial Conduct Authority's (FCA) guidelines for consumer credit calculations.