Debt Consolidation Calculator: Estimate Your Savings (2024)

Being in debt can be a stressful experience. Forty-four percent of Americans say that paying bills was one of their primary financial stressors, according to a 2021 survey by the National Endowment for Financial Education. Meanwhile, 21% of survey participants note that trying to pay down credit card debt in particular was a major financial concern.

If you are also worried about your outstanding loans, debt consolidation is one potential approach to consider. Not only could consolidating debts lower your stress, but this strategy might also help you save money, get out of debt faster and even improve your credit score.

At the same time, it’s essential to remain objective and take an honest look at your individual situation. Debt consolidation isn’t a one-size-fits-all solution. The Forbes Advisor debt consolidation calculator can help you understand how much consolidating your debt will cost or save you.

What Is Debt Consolidation?

Debt consolidation lets you merge multiple debts into one new loan or credit card. The amount you owe, not including interest, typically remains the same unless there are fees, such as credit card balance transfer fees.

If you use a personal loan to consolidate debts, you will also owe interest on your new loan. If your credit score has improved since you took out your original loans, you may qualify for a lower interest rate and save on interest. Some credit cards, on the other hand, offer no-interest balance transfers. This means you will owe no interest if you repay your balance within the promo period. Those offers are reserved for applicants with the highest credit scores.

Whether you’re consolidating personal loan or credit card debt, doing so is a handy way to streamline your payments and manage one monthly debt obligation.

Pros and Cons of Debt Consolidation

A debt consolidation loan can be a great tool to improve your financial situation, but it does pose some risk. Consider the pros and cons of a debt consolidation loan before you seek one out.

Pros

• Streamlines loan repayment
• Repay debt faster with a shorter term or lower interest rate
• Can boost your credit score, especially if you use a loan to pay off credit card debt
• New loan terms may create more affordable payments
• Some debt consolidation lenders repay our old lender directly

Cons

• May need collateral to secure a loan
• Can temporarily impact your credit score
• Interest rates may be high
• Longer terms keep you in debt longer
• Monthly payments can be higher, depending on term length and interest rate

What Are the Best Ways to Consolidate Debt?

There are two popular ways to consolidate debt, including:

• Debt consolidation loans
• Balance transfer credit cards

1. Debt Consolidation Loans

A debt consolidation loan is a common type of personal loan you can use to pay off numerous creditors and combine several debts into a single account.

When you apply for a debt consolidation loan, your goal should be to lower the interest rate you’re paying on the debt you owe. Getting a lower rate saves you money in overall loan costs. You might also see a reduction in your monthly payment amount, depending on the repayment terms of your new debt consolidation loan.

Where to Get Debt Consolidation Loans

Various lenders offer personal loans for debt consolidation, including traditional banks, credit unions and alternative online lenders. Many of these lenders offer the option to apply for a loan online so you can quickly and conveniently consolidate your debt without visiting a bank branch.

The best lenders for debt consolidation loans offer competitive interest rates, flexible repayment terms and lack penalties for prepayment.

Can You Get Debt Consolidation Loans With Bad Credit?

If you have a bad credit score, qualifying for a debt consolidation loan could be difficult. There are some debt consolidation lenders that work with consumers with bad credit, but just because you can qualify for a debt consolidation loan with bad credit doesn’t mean you should accept the terms a lender offers you.

With bad credit scores, lenders typically charge higher interest rates and fees to offset the added risk. This increases the overall cost of your loan and how much interest you’ll pay over time.

2. Credit Card Balance Transfer

Another way to consolidate debt is with a credit card balance transfer. With this debt payoff method, you open a new credit card account with a promotional annual percentage rate (APR) offer. You can often find credit card issuers that offer qualified applicants an opportunity to pay a low or 0% APR on transferred balances for a limited period of time.

However, most credit card balance transfers charge a one-time fee for the service. This fee is often 3% to 5% of the debt you transfer. For example, if you transfer $10,000 to your new account and a 5% balance transfer fee applies, the consolidation would cost you $500.

When Should You Consider Debt Consolidation?

Here are a few signs that debt consolidation may be right for you:

• You have high-interest debt. Debt consolidation can often be helpful for consumers who are paying high APRs on credit cards, personal loans and other types of debt. If you can qualify for new financing that could save you money, consolidating your debt could be a good choice.
• Your credit score is good or excellent. Your application for a new debt consolidation loan or balance transfer credit card will involve a credit review. If you have a good credit score or better (at least 670), you should have a better chance of qualifying for favorable terms. You can check your credit score online to see where you stand before you start applying.
• You’re managing multiple monthly payments. Consolidating debts streamlines your payments and simplifies the management of your monthly budget.

Is Debt Consolidation Worth It?

Debt consolidation can be worth it if it lowers your monthly payment or allows you to pay off debt faster. If you can find a lower interest rate or a shorter term that fits into your budget, a debt consolidation loan can help you improve your credit, save you money and pay off your debt faster.

On the other hand, if debt consolidation is more expensive than keeping your current debt, it’s likely not worth it. On top of that, debt consolidation is often criticized because it doesn’t address overspending. Before you opt to consolidate your debt, consider how you’ll keep yourself from accumulating more debt after consolidation.

Frequently Asked Questions (FAQs)