Does debt consolidation save money?
Consolidation replaces several debts with one personal loan, ideally at a lower rate than your credit cards. It helps when the new APR is meaningfully lower than the rates you pay now. It can also give you a fixed end date, which credit cards don't have.
The calculator compares two paths with real numbers. In one, you keep paying your current monthly total on the existing debts, rolling each paid-off payment into the highest-rate debt. In the other, you take the consolidation loan. The loan amount includes the origination fee, because lenders usually deduct it from the money you receive, so you must borrow more to clear the same debts.
Things to check before you sign
- The fee. A 5% fee on a $15,000 loan is $750 added to your balance.
- The term. A longer term lowers the payment but can raise total interest.
- The cards. Consolidation only works if the old cards don't fill back up. Many people keep them open for credit history but stop using them.
If the loan rate isn't much lower, the debt paydown planner may get you out of debt for less.