Sarah Miller specializes in personal financial distress and debt management strategies, ensuring this calculator provides accurate and actionable consolidation analysis.
Use the authoritative **Debt Consolidation Calculator** to plan your path to debt freedom. Simply enter any three variables—Total Principal, New Rate, New Term, or Required Payment—to instantly solve for the fourth and determine your optimal consolidation strategy.
Debt Consolidation Calculator
Debt Consolidation Formula
This calculator uses the core loan amortization formula, relating Principal (F), Rate (P), Term (V), and Payment (Q):
$$ Q = F \frac{i(1 + i)^n}{(1 + i)^n – 1} $$
Where $i$ (Monthly Rate) $= P / 1200$, and $n$ (Total Payments) $= V \times 12$.
Formula Source: NerdWallet (Amortization Principle)Formula Variables
- F (Total Principal Debt): The total amount of money consolidated into the new loan.
- P (New Consolidation Rate): The annual interest rate (%) of the new consolidated loan.
- V (New Loan Term): The length of time (in years) set for the repayment of the new loan.
- Q (New Monthly Payment): The fixed amount paid each month to pay off the consolidated debt.
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What is Debt Consolidation?
Debt consolidation involves taking out a single, new loan to pay off multiple smaller debts, such as credit cards, medical bills, or personal loans. The primary goal is usually to simplify payments and, more importantly, to secure a lower overall interest rate and/or a longer repayment term to reduce the monthly obligation. This strategy can be a powerful tool for regaining control over unmanageable debt, but it requires discipline to ensure no new debt is accumulated.
Using this calculator, you can quickly analyze scenarios. For example, if you know your budget can handle a maximum Payment (Q) of \$500, you can solve for the longest Term (V) required to achieve that, or the maximum Principal (F) you can consolidate. Conversely, if you want to be debt-free in 5 years, you can solve for the required Payment (Q) to meet that Term (V).
How to Calculate Required Payment (Example)
Let’s find the Monthly Payment (Q) required to consolidate $\$20,000$ (F) at $6.5\%$ (P) over 5 years (V).
- Step 1: Determine Loan Variables
Principal ($F$) = \$20,000. Annual Rate ($P$) = 6.5%. Term ($V$) = 5 years.
- Step 2: Calculate Monthly Rate ($\mathbf{i}$) and Total Payments ($\mathbf{n}$)
Monthly Rate ($i$) = $0.065 / 12 \approx 0.005417$. Total Payments ($n$) = $5 \times 12 = 60$.
- Step 3: Apply the Amortization Formula
Substitute these values into the formula to solve for $Q$.
- Step 4: Determine the Monthly Payment
The calculation yields a required Monthly Payment (Q) of approximately **\$391.22**.
Frequently Asked Questions (FAQ)
No. Consolidation is only beneficial if the new consolidated loan has a lower Annual Rate (P) than the average rate of your current debts, or if the lower monthly payment (Q) is essential for your short-term budget stability. Extending the Term (V) can increase total interest paid.
What is the difference between a consolidation loan and a balance transfer?A consolidation loan (what this calculator analyzes) is a new installment loan. A balance transfer moves debt to a new credit card, often with a promotional 0% interest rate, but that rate typically expires after 12-21 months, after which the rate can be very high.
Will debt consolidation hurt my credit score?Initially, applying for a new loan causes a small, temporary dip due to a hard inquiry. However, successful consolidation and timely payment of the new loan will typically improve your credit score in the long run by reducing credit utilization and improving payment history.
Does this include origination fees?This calculator is based on the loan principal (F). If your consolidation loan charges an origination fee, that fee should be added to the total amount you need to borrow, thus increasing your Principal (F) input for accurate results.