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How To Use a Debt Consolidation Calculator

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In a Nutshell

If you’re struggling to keep up with multiple payments, debt consolidation may be a good choice for you. A debt consolidation calculator can help you determine if this is the right way for you to get your debts under control. In this article, we’ll look at what debt consolidation is and how debt consolidation calculators work.

Written by Mark P. Cussen, CMFC
Updated August 10, 2023

 Effective debt management is one of the cornerstones of personal finance. If you take on too much debt and can’t repay it, you risk losing some or all of your assets. And if you have too many monthly payments to keep track of, you may accidentally miss making some of those payments on time. This can result in late fees and late payments on your credit report, which will decrease your credit score. 

If you’re struggling to keep up with multiple payments, debt consolidation may be a good choice for you. A debt consolidation calculator can help you determine if this is the right way for you to get your debts under control. In this article, we’ll look at what debt consolidation is and how debt consolidation calculators work. 

What Is Debt Consolidation?

Debt consolidation is simply combining two or more debts into one monthly payment. You can do this in several ways. For example, you can take out a debt consolidation loan and use the proceeds to pay off several debts. Then you’ll make a single payment on this new loan every month. This can be a good idea if you are far behind in your current payments because the new loan allows you to start fresh. Just be sure that you’ll be able to make your new monthly payment or you could end up in worse shape than before. 

Though debt consolidation doesn’t reduce the total amount of debt that you owe, it does restructure your debt to make your monthly payment more manageable. In most cases, consolidating your debt only makes sense if you can get better repayment terms, like a lower interest rate. Having a good credit score can help you qualify for a lower interest rate on the new loan than you were paying on your past debts. 

Debt consolidation may be a good option for you if:

  • You have a good to excellent credit score;

  • You have enough cash flow each month to cover the loan payment; and

  • Your total debt payments aren’t more than 50% of your gross monthly income.

If you’re considering debt consolidation, you’ll want to first find out how much you’re spending on your debts each month. Then look at some debt consolidation loan options and see how much you could save. If the loan payment and interest rate is less than half of your gross monthly income, then it’s probably a good idea to move forward with it. If not, then you may have to pay down a few of your debts first. 

If you are unable to manage your debts with a consolidation loan, then you may need to consider filing bankruptcy. This can allow you to get out from under most of your debts and start fresh (except for non-dischargeable debts like back taxes, court-ordered payments). But bankruptcy also comes with some very serious drawbacks. For one, it will stay on your credit report for seven years if you file Chapter 13 bankruptcy or for 10 years if you file Chapter 7. While this will make it difficult to get new credit immediately following the bankruptcy, your credit score won’t be ruined forever

Different Types of Debt & Consolidation

Not all debt is the same, and only some types of debts can be consolidated. Most unsecured debt can be consolidated. This includes student loans, credit card debt, personal loans, medical debts, and installment loans like personal loans. But secured debt, such as mortgages and auto loans, can’t be consolidated. That’s because if you default on those debts, the lender has something they can repossess or take back to try to recover the outstanding debt. 

A consumer credit counselor can help you find a debt consolidation loan at a low rate. A quick online search is a good place to start, but a credit counselor may be able to point you to alternatives that you wouldn’t find on your own. They may know of lenders that offer loans with interest rates below the current market levels. Some of these lenders may be member-FDIC banks or credit unions while others may be more specialized. You can also check online banks to see if they offer loans with a low payment amount or low personal loan rates. 

How Does Debt Consolidation Work?

As mentioned previously, debt consolidation is simply a form of refinancing by combining two or more loan balances into a single loan. Let’s say you have balances on three credit cards, two personal loans, and a private student loan provided by your local bank. You could potentially take out a personal debt consolidation loan to roll all of these debts into a single monthly payment. In addition to personal loans, you can consolidate your debt using a balance transfer credit card or a home equity loan. Federally subsidized student loans can also be consolidated.

Credit Card Balance Transfer

If you’re mostly dealing with outstanding credit card debt, then a balance transfer may be a good option. In a credit card balance transfer, you transfer your existing credit card balances to a new credit card that is charging low or no interest for an introductory period (often six months to a year). All the credit card payments you make during that period will go directly toward reducing the principal amount of your debt. Not having interest accumulate for a period of time can help you get ahead of your debt.

Home Equity Loans

If you own your own home, then you can use a home equity loan or home equity line of credit (HELOC) to pay off high-interest unsecured debt such as credit card debt. Home equity loans and HELOCs tend to have much lower interest rates than credit cards. The trick is to make sure that you don’t run your credit card balances back up after you pay them off. If you do, you could end up in worse shape than before. If you have a good credit score and credit history, then this option will most likely be the best one for you. 

Federal Student Loan Consolidation

If you have multiple federally subsidized student loans, you can often consolidate them into one loan. If you’re struggling to repay your loans, consolidation is just one way to address this. You may also be able to apply for deferment or forbearance. These options allow you to skip payments for a period of time. As with other types of loans, the terms of a possible consolidation will depend on your creditworthiness. But it’s possible to lower your monthly payments with this kind of consolidation.

Pros & Cons of Debt Consolidation

Taking out a debt consolidation loan has advantages and disadvantages. Many of the advantages revolve around making the loan more manageable.

  • You’ll only have one monthly payment instead of several. If you’re having trouble keeping track of all of your debt payments, this can greatly simplify things. It’s a lot easier to remember to make one payment on a certain day each month than five or six separate ones. 

  • You may be able to get a lower interest rate. Interest rates will vary based on your creditworthiness and the type of loan you’re applying for. Home equity loans or lines of credit tend to have the lowest interest rates. 

  • You may be able to lower your monthly payment. Your new payment for the consolidation loan may be less than the combined payments that you were making before. 

That said, there are also some disadvantages, including:

  • You may pay more in interest. If your debt consolidation loan has a longer term, then you may end up paying more interest over time than you would if you’d paid off all of your old debts separately. 

  • You may have to pay loan fees. If you use a home equity loan or line of credit, then there will be closing costs and other fees to consider as well. A personal loan may also have an origination fee. 

  • You may not qualify. If your credit is in bad shape, then it may be difficult to qualify for a debt consolidation loan. And if you do, then you’ll pay a higher interest rate than someone with good credit would. 

How Does Debt Consolidation Impact Your Credit Score?

When you consolidate your debt, you pull several of your personal financial “levers” at once. This can either help your credit score or hurt it. If you’re able to make your debt consolidation payment reliably each month, then your score will probably go up over time. This is especially true if you were missing payments regularly before you consolidated your debts. But if you get a debt consolidation loan and run up your old debts again, then you will be in a much worse place than before. Also, when you apply for a debt consolidation loan, the lender will do a hard inquiry credit check, which will decrease your score by a few points.

Debt consolidation loans are only effective if you’re able to control your spending and use your credit wisely. They can be lifesavers if you are trapped in a cycle of high-interest payments. For example, say you declared Chapter 13 bankruptcy and have only had access to high-interest loans and credit cards since then. As the bankruptcy ages, and certainly once it falls off of your credit report, you may qualify for loans with much lower interest rates than you were paying before. 

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Debt Consolidation Calculators

There are many different types of debt consolidation calculators online. If you visit with a consumer credit counselor, they may also use one as well. You can use debt consolidation calculators to determine whether a debt consolidation plan is right for you. In most cases, this calculator will compare the monthly payments and interest rates on your current debts with the monthly payment and interest rate of a debt consolidation loan. If the payment and interest on the consolidation loan are lower than what you’re paying on your current debts, then the loan could be the right option. 

In order to use a debt consolidation calculator correctly, you will need to know:

  • The annual percentage rate (APR) of each of your current debts;

  • The exact dollar amount of each of your monthly payments; 

  • The total balances of each of your debts; and 

  • The term of each debt (how long they will last until they are paid off). 

The calculator can also be used to compare the terms of different debt consolidation loans to see which one is best for you. You may prefer getting a loan with a longer term, so you have a lower monthly payment. Or if you want to get out of debt faster, you may want a loan with a higher monthly payment and a lower interest rate. 

Don’t hesitate to seek professional advice if you need it. Debt consolidation calculators can be helpful tools, but understanding your debt relief options can be complicated. Any financial advisor or consumer credit counseling service can help you figure out how much debt you have, how much you’re paying for it, and whether you will qualify for, or can benefit from, a debt consolidation loan. They may also have other ideas about what you can do about your debt, such as setting up a debt management plan (DMP) or filing for bankruptcy

Bankruptcy is generally a last resort, but it may be the best option in some cases. If you have no hope of ever paying off all of your unsecured debt, then bankruptcy can help you to start over. But it also comes with serious consequences. If you declare bankruptcy, then this will stay on your credit report for the next 7-10 years. It will be much harder and more expensive to get new credit during that time. 

Let’s Summarize...

If you have several unsecured debts like credit card bills and you’re struggling to make all the payments, a debt consolidation loan may be a good option. It streamlines your payments and in some cases lowers your monthly payment and/or interest rate. To get a sense of whether this might be a good option for you, you can use a debt consolidation calculator. A good debt consolidation calculator can show you whether a debt consolidation loan will save you money over time and how different loans, loan terms, and loan amounts compare to each other. 

Contact a qualified consumer credit counselor if you need help understanding your debt and your options to deal with it. If a debt consolidation calculator reveals that a consolidation loan cannot help you, then bankruptcy may be your only alternative. But you’ll only want to pursue this if you’ve exhausted all other options.

Written By:

Mark P. Cussen, CMFC


Mark has over 25 years of experience in the financial industry, and has worked with investments, insurance and mortgages as well as income tax preparation and comprehensive financial planning. His writing work includes insurance and securities training manuals and educational art... read more about Mark P. Cussen, CMFC

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