Debt Consolidation Calculator

Two things have to be true at once. First, the consolidation APR has to beat the weighted-average APR across the debts you are paying off; a $20,000 mix at 18% APR refinanced at 10% APR over 60 months saves thousands in interest, but the same mix refinanced at 17% saves almost nothing. Second, you have to actually commit to the new payoff schedule and not run the credit cards back up. The math of consolidation is only as good as the behavior that follows it: every dollar of new credit-card balance erases a dollar of the savings the loan was supposed to lock in. If either piece is missing, snowball or avalanche on the existing structure usually beats taking on a new loan.

The origination fee is added to the consolidation loan amount, so you pay interest on it for the full term. A typical personal-loan origination fee runs 1 to 8 percent. On a $20,000 consolidation at 10% APR over 60 months, a 5% fee adds $1,000 to the financed balance, which costs roughly $1,275 in total repayment ($1,000 principal plus about $275 of interest on the rolled-in fee). That comes straight out of your interest savings: a consolidation that looked like it would save $3,000 in interest only saves about $1,725 net after a 5% fee. This calculator already nets the fee out of the savings figure so you see the bottom-line number, not the gross.

Short term, yes; long term, usually not. The lender runs a hard credit pull when you apply, which typically lowers FICO by a few points and stays on the report for two years. The new loan also opens a new tradeline, which drops the average age of accounts. Once the loan funds and you pay off the credit cards, however, your overall utilization ratio drops sharply (utilization is 30% of FICO), and most borrowers see a net score increase within one to two billing cycles. The biggest credit risk is closing the freshly-paid-off cards: that shrinks your total available credit and pushes utilization back up. Keep the old cards open at zero balance unless they carry annual fees you do not want to pay.

The consolidation trap happens when you pay off cards with a personal loan and then rebuild the card balances. You then owe both the loan and the cards. Before consolidating, set a payoff budget, automate the new payment, and decide how you will prevent new revolving debt. Closing accounts can affect available credit and is not always the right step, so weigh fees, spending control, and credit impact together.

Avalanche (paying minimums on every debt and throwing every extra dollar at the highest-APR debt) is almost always the mathematically optimal payoff strategy when you keep your current debts in place. Consolidation can beat avalanche when the new APR is meaningfully lower than the highest current APR, because every dollar of the consolidated balance drops to the new rate, not just the dollars on the worst card. The rough rule of thumb: if your weighted-average APR across debts is above 18% and you qualify for a sub-12% consolidation loan, consolidation usually wins after the origination fee. If the weighted-average APR is already below 12% to 14%, avalanche on the existing structure usually costs less than the new loan's fees and longer term. Run both and compare the dollar gap before deciding.