Debt Consolidation Calculator
InCharge’s Debt Consolidation Calculator is a smart way to determine if working with a credit card consolidation company will save you money, either through a debt management program or debt consolidation loan.
Food, housing, and medical costs have skyrocketed over the last decade, forcing people to take on more debt to meet their basic needs. Around 26% of consumers in debt have no plan on how to pay it off. This is where a debt consolidation calculator can help by giving consumers a breakdown of their relief options in terms they can easily understand.
How to Use the Debt Consolidation Calculator
Follow these steps to compare rates using the debt consolidation calculator.
- Enter the APR and loan term for a potential consolidation loan. APR is based on your credit score and other factors, so you’ll have to shop around at banks, credit unions and online debt consolidation lenders to find what type of rate you can get. Typically, it should range from 6% (with a credit score above 750) to as much as 20% or higher (with a credit score under 620).
- Next, fill out your current debt information. For each credit card or loan, insert the total amount you owe in the balance column, your average monthly payment in the next column, and the interest rate your credit card carries. This information will tell you, as of right now, how long it will take for you to pay off your debt by making the current payments and the amount of interest you’ll end up paying.
- Some loans also carry an origination fee, a one-time fee based on a percentage of the loan (anywhere from 1%-8%). Keep that in mind when comparing the cost of loans.
- Once you fill out the information, hit submit. The results will be listed in a table below comparing the cost of your current debt to a potential debt consolidation loan.
Debt Consolidation Loan Calculator: Estimate Your Savings
When you take out a debt consolidation loan, your lender makes one loan to pay off all your eligible debts; then, you make one monthly payment to cover the new loan. The interest rate on a debt consolidation loan should be far less than what you pay on credit card bills, where the average interest rate in 2021 is 15.91% and could be as high as 29%.
You can consolidate bills on your own, but it might help to seek assistance from a nonprofit credit counseling company. With the aid of a debt management plan, you could have your credit card interest rates slashed to 8% or lower.
Additional Ways to Consolidate Debt
Debt consolidation comes in many forms. Merriam-Webster defines consolidation as “the process of uniting.” You can view debt consolidation as the process of uniting your eligible debts into a single account. There are many ways to do this besides a debt consolidation loan.
Here are some options to consider:
- Balance transfer credit cards – let you transfer multiple credit card balances onto a new credit card with an intro rate that usually ranges from 0-3%. The intro period can last from 6-18 months, but afterward, your rate will climb back to standard levels, which could range from 13-29% or higher. The key to making these cards work is paying off the balance before losing the introductory rate and avoiding new purchases which are not subject to the intro rate. Also, you will need a credit score higher than 680 to qualify for most balance transfer cards.
- Home equity loans – let you access the equity in your home, but put the home at risk of foreclosure if you can’t make payments. To figure out how much home equity you have, subtract your mortgage balance from your home’s market value. If you have a mortgage balance of $100,000 and your home is worth $250,000, you have $150,000 in home equity. Most banks will let you borrow up to 80% of this amount, which you pay back at a fixed rate that’s usually a fraction of what credit card companies charge for borrowing.
- 401K loans – offer a convenient way to pay off your debts, but can take a big chunk out of your retirement savings. You don’t have to show lenders that you’re worth the investment since you’re borrowing money from yourself. This means no lengthy income verification process or credit vetting. A 401K loan lets you borrow half of the amount in your account, up to a max of $50,000.
When Should I Consider Debt Consolidation?
Consolidation isn’t a cure-all for debt. You still have to pay back what you owe, and consolidation could be a wasted effort without the available means to repay. It’s best to target realistic solutions that address your unique financial situation.
That being said, here are some indications that a debt consolidation loan is a suitable option for you:
- You’re overwhelmed by the sheer amount of bills and payment deadlines you have to keep up with.
- The total remaining interest and the monthly payment are lower on the proposed consolidation loan than what is shown on your current debt.
- Your credit is good enough to qualify for a low-rate debt consolidation loan.
- You’ve received a bump in income, a raise, or an inheritance, and you want to pay off your debts quicker.
- You have too much debt to effectively take advantage of do it yourself methods like debt avalanche or debt snowball.
- You’re confident you can pay off the debt consolidation loan in under five years.
Things to Consider Before Consolidating Your Debt
With so many ways to consolidate, you may be tempted to take out the first loan you can find. Low APRs are enticing, but it may take more to save money than reducing your rate.
Here are some other things to keep in mind when looking into debt consolidation:
Fees: Consolidating debt with a loan means you’ll be subject to new fees. You’ll need to review your loan agreement to determine exactly what fees are included. Expect to pay an application fee and perhaps an origination fee that could range from 1%-8% of the loan amount.
Interest: A debt consolidation loan could end up costing you more in interest if you extend the loan term or lower your monthly payment obligation. Doing this may offer short-term relief, but it will take you longer to repay the loan, giving interest more time to grow.
Old habits: Debt Consolidation can help free you of debt, but unless you address what led to your debt in the first place, you risk succumbing to the same old pitfalls. This could mean establishing a budget, dropping an expensive habit, or boosting your income with a side gig.
Definition of Debt Consolidation Calculator Terms
Annual Percentage Rate (APR): The amount of interest charged on a debt for a whole year, including interest, fees, and other costs. It is used most often in computing the cost of credit cards. The formula works like this: Average daily balance divided by number of days in the billing cycle (typically 30), multiplied by the periodic daily interest rate (PDR), which is then multiplied by the number of days in a billing cycle (30). For example: If you owed $1,000 on a credit card at 15% APR for one month, your interest payment would be $40.99 for one month. The math involved is 1,000/30 = 33.33 x PDR (15/365 = .041) x 30 = $40.99.
Balance: The amount you still owe on your debt. It’s computed by adding all purchases in a billing cycle, plus whatever fees were involved in those purchases (example: fee for using ATM), the amount unpaid from the previous billing cycle (if not already paid in full), and applicable interest rate charge.
Monthly Payment: Amount you expect to pay on your debt every month.
Yearly Rate: The amount of interest charged over 12 months. Also known as the Annual Percentage Rate or APR.
Loan Term: The amount of time you have to pay off a loan. The loan term is measured in months. The longer the loan term, the more time interest accumulates, making the loan more expensive. The shorter the loan, the less interest you’ll have to pay.
Loan Origination Fee: Some loans have an origination fee, a one-time charge by the creditor to process your loan. It’s a percentage of the total loan, usually 1%-8%. If you take a $100,000 loan with a 1% origination fee, you’ll be charged $1,000 upfront.
Debt Consolidation FAQs
Can I consolidate all my debts?
That depends on the debt consolidation method you choose. Debt management typically works with credit card debt and other forms of unsecured debt like payday loans, personal loans, and medical bills.
Restrictions vary per debt consolidation loan, but most unsecured debts are eligible for consolidation.
What is the average interest rate for debt consolidation loans?
A debt consolidation loan is a personal loan, and rates can range from 6%-36%. The average rate on a two-year personal loan is 9.4%, according to the Federal Reserve. Keep in mind that longer term limits lead to higher rates.
Can I use my credit cards after consolidating my debt?
If you choose consolidation with a debt management program, you will be asked to stop using your credit cards until you’ve completed the program.
If you consolidate with a debt consolidation loan, we recommend that you keep your credit cards open but don’t use them before paying off your loan.
Will debt consolidation hurt my credit?
Taking out any loan requires a hard credit check. This will drop your score for a short period. Length of credit history is another factor determining your credit score. This means closing old credit cards can lower it. However, debt consolidation itself should help your credit score in the long run … but only if you make on-time payments.
Can you get a debt consolidation loan with bad credit?
You can qualify for a debt consolidation loan with bad credit, but your options are slim, and you’ll likely pay too much in interest to show any actual savings.
What are my options if my debt consolidation loan application is rejected?
If you are denied a debt consolidation loan, you can work on improving your credit, which will make you more appealing to lenders. Or, you can consolidate with a debt management plan. These programs are easier to qualify for since there’s no minimum credit score or income requirement.
How do I choose a reputable debt consolidation company?
Do your research. Find a company that prioritizes customer service and transparency. They should be upfront about the costs involved and the time it will take to complete the debt consolidation program. Look for a company that offers personalized counseling and educational resources on finance and budgeting.
It’s essential that you get in touch with an NFCC-member nonprofit credit counseling agency like InCharge Debt Solutions. NFCC members must maintain strict qualification standards and undergo regular accreditation. This makes them more reliable than for-profit counseling agencies.
About The Author
In his 40-plus-year newspaper career, George Morris has written about just about everything -- Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. His work has received multiple honors from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can't, and he's only too happy to suggest how you might do the same.
- N.A. (ND) Infographic: Get the Facts on Debt Consolidation. Retrieved from https://www.suntrust.com/resource-center/personal-finances/article/infographic-get-the-facts-on-debt-consolidation#.YZJ6Zr3MKqA
- N.A. (2021 August) Finance Rate on Personal Loans at Commercial Banks. Retrieved from https://fred.stlouisfed.org/series/TERMCBPER24NS
- N.A. (2021 September) Consumer Credit - G.19. Retrieved from https://www.federalreserve.gov/releases/g19/current/