Interest savings and monthly payment change from consolidating debts into one loan

When Consolidation Saves Money and When It Does Not

Debt consolidation rolls multiple debts into a single loan, typically with a lower rate than the weighted-average of the originals. It saves money when the new rate is materially lower AND the new term does not extend so far that compound interest on the longer term offsets the rate savings. A common failure mode: replace 22% APR credit cards over 2 years with 12% APR consolidation loan over 7 years. The rate dropped, but the term tripled. Total interest paid can actually increase despite the better rate.

The Math That Actually Matters

Current path: calculate how long and how much interest under current payments. Consolidation path: calculate monthly payment and total interest on the consolidation loan. Compare total interest, not just rate or monthly payment. A lower monthly payment feels better but often hides more total interest over a longer term. The calculator does both calculations and flags which saves money.

Typical Consolidation Loan Options

Personal loan from a bank or credit union: 7-18% APR, 2-7 year terms, origination fees 0-5%. Balance transfer credit card: 0% intro APR for 12-21 months, then 17-24% APR, balance transfer fee 3-5%. Home equity loan or HELOC: 6-10% APR, 10-30 year terms, closing costs 1-5%. tax-advantaged retirement account) loan: prime rate + 1-2%, 5 year term, no credit check but money misses market growth. Each option has different trade-offs beyond pure rate.

Origination Fees Eat the Savings

A 30,000 consolidation loan with 5% origination fee means 1,500 added to principal. If the consolidation saves 3,000 in interest over its term, the effective saving is 1,500 after the fee. Fees are often expressed as a percentage but paid upfront from the loan proceeds — you receive less than the face amount. The calculator takes origination fee as a dollar input so you can model either case.

Worked Example

25,000 total debt (mix of credit cards + personal loans) at 18% average APR. Current monthly payment 700 — payoff takes about 52 months, costs roughly 11,270 in interest. Consolidate to a 25,000 personal loan at 10% APR over 48 months with 2% origination fee (500). New monthly payment: 634. Total interest under consolidation: 4,928 + 500 fee = 5,428. Interest saved: 5,842. Monthly payment lower by 66. Consolidation wins materially here.

Risks the Calculator Does Not Show

Credit score impact — a new loan adds a hard inquiry and changes credit mix. Temporary dip of 10-30 points typical, recovering in 6-12 months. The underlying behaviour that produced the debt in the first place. If you consolidate credit cards but keep using them, the result is consolidation loan PLUS new credit card debt. Closing old cards after consolidation hurts credit utilisation ratio. Keeping them open with 0 balance is usually better. Home equity consolidation moves unsecured debt to secured — the consequences of default become much worse because your home is now collateral.

Red Flags in Consolidation Offers

Pre-approved junk mail offers often target people with weaker credit and carry rates that barely beat the debt being consolidated. Look for the actual APR (not teaser rate), not the headline monthly payment. Debt settlement companies (as opposed to consolidation lenders) ask you to stop paying debts while they negotiate — this destroys your credit for 7 years and often produces marginal savings. True consolidation lenders never require you to stop payments. Always check reviews of the specific lender before signing anything that locks in a multi-year commitment on tens of thousands of units.