Debt Consolidation Calculator
Current Debts
Consolidation Loan Details
Consolidation Tips
- •Shop around for the best consolidation rate
- •Check for origination fees that affect true cost
- •Avoid running up new debt after consolidating
- •Consider 0% balance transfer cards for small debts
Understanding Debt Consolidation
What is Debt Consolidation?
Debt consolidation combines multiple debts into a single loan with one monthly payment. The goal is typically to secure a lower interest rate, reduce monthly payments, or simplify debt management by having just one payment to track.
Consolidation Options
Personal Loan
An unsecured loan from a bank, credit union, or online lender. Fixed rate and term, typically 2-7 years. Rates depend on credit score.
Balance Transfer Card
Credit card with 0% intro APR for 12-21 months. Best for smaller debts you can pay off during the promo period.
Home Equity Loan/HELOC
Borrow against home equity for very low rates. Puts your home at risk if you cannot repay. Closing costs apply.
401(k) Loan
Borrow from your retirement account. No credit check, but reduces retirement savings and has penalties if you leave your job.
When Consolidation Makes Sense
Good Candidates
- • High-interest credit card debt
- • Good credit score (can get lower rate)
- • Stable income to make payments
- • Committed to not adding new debt
Poor Candidates
- • Cannot get a rate lower than current average
- • Small total debt amount
- • Likely to run up new credit card debt
- • Unstable income situation
Pros and Cons
| Advantages | Disadvantages |
|---|---|
| Lower interest rate possible | May extend repayment period |
| Single monthly payment | Origination fees may apply |
| Fixed payoff timeline | Temptation to use freed-up credit |
| Can improve credit utilization | Hard credit inquiry required |
Important Warning
Debt consolidation only works if you change the spending habits that led to debt in the first place. Many people consolidate only to run up new credit card balances, ending up with more total debt than before. Close or freeze credit cards after consolidating to avoid this trap.
Frequently Asked Questions
Does debt consolidation hurt your credit score?
Initially, your score may dip slightly due to the hard credit inquiry and new account. However, consolidation often improves your score over time by reducing credit utilization (the ratio of balances to limits) and simplifying payments. Consistently making on-time payments on the new loan builds positive credit history.
What is the best way to consolidate credit card debt?
The best method depends on your situation. Personal loans offer fixed rates and terms. Balance transfer cards offer 0% APR temporarily. Home equity loans have the lowest rates but risk your home. For most people, a personal loan from a credit union or online lender offers a good balance of rates, terms, and safety.
Should I consolidate my debt or pay it off individually?
Consolidate if you can get a significantly lower interest rate (at least 2-3% less), want to simplify multiple payments into one, or need a fixed payoff timeline. Pay individually if you can't qualify for a better rate, have small total debt, or prefer the psychological wins of the snowball method.
What credit score do I need for a debt consolidation loan?
Credit score requirements vary by lender. Traditional banks typically want 670+. Credit unions may work with 600+. Online lenders range widely, with some accepting scores as low as 580 but at higher rates. Generally, scores above 700 get the best rates (often 6-12% APR), while lower scores may see 15-25% or higher.