Debt Consolidation Calculator

Debt consolidation combines multiple debts — credit cards, medical bills, personal loans — into a single new loan with one monthly payment. The goal is typically to secure a lower interest rate, reduce monthly payments, simplify your finances, or shorten the payoff timeline. The most common vehicles are personal loans (unsecured, fixed rate, fixed term from a bank, credit union, or online lender), balance transfer credit cards (0% intro APR for 12–21 months), home equity loans, and HELOCs. Consolidation does not erase debt — it restructures it. The total you owe stays the same; the terms change.

In the short term, applying for a consolidation loan triggers a hard inquiry, which typically drops your credit score by 5–10 points for up to 12 months. However, the medium- and long-term effects are usually positive: your credit utilization ratio falls when you pay off revolving credit card balances (utilization accounts for about 30% of your FICO score), and on-time payments on the new fixed loan build positive payment history (35% of FICO). One mistake people make is continuing to use the credit cards they paid off, which rebuilds the original debt while adding the new loan on top — the so-called 'debt consolidation trap.'

Requirements vary by lender, but general guidelines are: (1) 720+ — Excellent; you'll qualify for the best rates (6%–12% APR) from top-tier lenders; (2) 660–719 — Good; most lenders will approve you, though at higher rates (12%–20%); (3) 580–659 — Fair; options are limited, rates are high (20%–36%), and some lenders require a co-signer; (4) Below 580 — Poor; traditional consolidation loans are difficult to obtain; consider credit counseling agencies, non-profit debt management plans (DMPs), or speaking with a bankruptcy attorney. A balance transfer card requires good to excellent credit for approval and a low intro APR.

These are fundamentally different strategies often confused. Debt consolidation means taking out a new loan to pay existing debts in full — you owe the full amount, just under new terms. Your accounts are paid in good standing, and your credit is not damaged beyond the hard inquiry. Debt settlement means negotiating with creditors to accept less than the full balance owed, often 40%–60% of the original amount. Settlement severely damages your credit score (stays on your report for 7 years), the forgiven amount is generally taxable income (IRS Form 1099-C), and the process can take 2–4 years while accounts remain delinquent. Settlement is typically a last resort before bankruptcy.

It depends on your interest rates, discipline, and financial situation. Pay off individually if: (a) your current rates are already low, making a new loan's savings marginal; (b) you can realistically pay off debts within 12–18 months using the avalanche (highest APR first) or snowball (smallest balance first) method; (c) you don't qualify for a meaningfully lower rate. Consolidate if: (a) your weighted average current APR is significantly higher than available consolidation loan rates; (b) managing multiple payment due dates is causing missed payments and late fees; (c) a fixed payoff date provides the structure and motivation you need. Always run the numbers: a lower monthly payment with a longer term can cost more in total interest even at a lower rate.

Key risks include: (1) Extending your repayment period — a lower monthly payment spread over more years may cost you more in total interest; (2) Securing unsecured debt — rolling credit card debt into a home equity loan puts your home at risk if you default; (3) Paying origination fees — 1%–8% fees can negate interest savings, especially on shorter loans; (4) Accumulating new debt — closing credit cards after consolidation and then reopening new ones creates a debt spiral; (5) Variable rate risks — some consolidation products (HELOCs, variable-rate personal loans) have rates that can increase; (6) Prepayment penalties — some existing loans charge fees for early payoff that reduce the benefit of consolidating. Always read the full terms of both the old debts and the new loan before proceeding.