Debt consolidation is the process of taking out a new loan to pay off other liabilities and consumer debts. It can be a way to manage debt by combining multiple payments into a single, often lower, monthly payment. This calculator can help you understand the potential costs and payments for different types of consolidation scenarios.

1. Consolidation Loan: Fixed monthly payments to pay off combined debt.
2. Lump Sum Payoff: A single payment to clear a loan at a future date.
3. Settlement Goal: The amount to set aside now to reach a future settlement figure.

Debt Consolidation Loan Calculator

Use this calculator to estimate the monthly payments for a new loan intended to consolidate existing debts, such as credit card balances, personal loans, or medical bills.

Lump Sum Payoff Calculator

Calculate the total amount you would need to pay off a loan in a single lump sum at the end of the term, including all accrued interest. This is useful for understanding the total cost of a short-term loan or a balloon payment.

Debt Settlement Goal Calculator

Use this calculator to determine how much you would need to invest or set aside today (the present value) to reach a specific debt settlement amount in the future.

Understanding Debt Consolidation Loans

A debt consolidation loan is a type of personal loan that provides a borrower with the funds to pay off multiple existing debts. The borrower is then left with only one monthly payment to the new lender. The primary goals are typically to simplify finances, lower the overall interest rate, and reduce the total monthly payment amount. Instead of using this general calculator, you might find more specific tools useful:

Lump Sum Payoff

Some financial situations may involve paying off a loan in a single payment at the end of its term. This is common with short-term financing or loans with a balloon payment structure. Unlike a standard amortized loan with regular payments, this type of loan accrues interest over its life, and the entire principal and interest are due at maturity. This calculator helps visualize the total cost of such a loan.

Debt Settlement Goal

Debt settlement is a negotiation process where a creditor agrees to accept a lump-sum payment that is less than the total amount owed. This calculator works backward: if you have a target settlement amount you want to offer in the future, it calculates the principal amount you would need to invest today, assuming a certain annual growth rate, to reach that goal. It essentially calculates the present value of a future sum of money.

Loan Basics for Debt Consolidation

Interest Rate (APR)

The interest rate on a debt consolidation loan is crucial. It’s expressed as an Annual Percentage Rate (APR), which includes the interest and any associated fees. The goal is to secure an APR that is lower than the average APR of the debts you are consolidating. A lower APR means less money paid in interest over the life of the loan. For more detail on APR, please visit the APR Calculator.

Loan Term

The loan term is the length of time you have to repay the loan. A longer term will result in lower monthly payments, but you will likely pay more in total interest over the life of the loan. A shorter term means higher monthly payments but less total interest paid. It’s important to find a balance between a manageable monthly payment and the total cost of the loan.

Types of Debt Consolidation Loans

There are two main categories of loans you can use for debt consolidation: secured and unsecured.

Secured Loans

A secured loan requires the borrower to pledge an asset as collateral. For debt consolidation, this is often a home equity loan or a home equity line of credit (HELOC). Because the loan is secured by your home, lenders see it as lower risk and may offer lower interest rates and higher borrowing amounts. However, this is a significant risk: if you default on the loan, the lender can foreclose on your home.

Unsecured Loans

An unsecured loan does not require any collateral. These are typically personal loans granted based on your creditworthiness. Lenders will evaluate your credit history, income, and other financial factors to determine your eligibility and interest rate. Because there is more risk for the lender, unsecured loans generally have higher interest rates and lower borrowing limits than secured loans. Examples of unsecured loans include personal loans and balance transfer credit cards. Please visit our Personal Loan Calculator for more information.