Debt consolidation combines all your monthly loan and credit card payments into one — potentially saving you a good chunk on interest.
How to calculate debt consolidation savings
Before you can start calculating potential savings with debt consolidation, you’ll need each loan’s interest rate and payoff balance. Then using that information, you can calculate the weighted average interest rate for all your loans with the following steps:
Multiply each of your loan balances by their individual interest rates (ex. $1,000 X 10% = 100). This will give you each loan’s weight.
Add all the weight factors together.
Divide the total weight factor by the number of loans and round to the nearest percent.
The number you’re left with is the average weighted interest rate for all the loans you want to consolidate.
With your loans’ average weighted interest rate, you can now compare debt consolidation rate offers to see if you’re likely to save money by consolidating — or if you’d be better off keeping things separate.
Terms to know for debt consolidation
Use the definitions below to better understand and compare your debt consolidation loan options.
Term
What it means
Balance
The combined amount that you owe on all of your loans and credit cards. Also, the new balance on a debt consolidation loan.
Debt amount
How much you currently owe on a credit card or personal loan.
Interest rate
The percentage of your credit card or loan balance that your lender charges over a year.
Loan length
How much time you have to pay off your new debt consolidation loan. Also known as the loan term.
Monthly payment
How much you pay on your loan or credit card each month. Or, after consolidating your debt, how much you would pay each month on a debt consolidation loan with that rate and term.
Total balance paid
The total amount you’ll pay to get out of debt, including the loan balance and total interest paid.
Total interest paid
The total amount you’ll pay in interest while paying back your loan. If you enter the loan’s APR, this field shows your loan’s total cost including interest and fees.
Total monthly payments
How much you currently pay each month on all of the credit cards and loans you want to consolidate.
Years to pay off
How much time it will take you to get out of debt. If you consolidate your debt, this is your loan term.
What are my debt consolidation options?
If you have debt from numerous loans and credit cards and planning on repaying it over a longer period of time, consider taking out a debt consolidation loan. If you’re able to afford paying off your debt within one year and can snag a 0% APR, then a balance transfer credit card may be better for you.
Whichever route is best for you, check out one of our tables below by clicking on each tab to see our list of offers.
Maximize savings by choosing the shortest loan term. While it will increase your monthly repayments, it should reduce how much you pay in interest. Crunch some numbers and figure out how much you can comfortably afford to pay each month.
Qualifying for a lower interest rate can also help you save money. You can take steps to improve your credit to make sure that your personal credit score is strong. Or you can simply take the time to compare your options to see which lender offers the most competitive rate.
Finally, consider prequalifying with a few lenders to see what types of rates and terms you’re eligible for. You can start your search with the table below.
Bottom line
Consolidating debt is especially a smart move when you have high-interest accounts. If you have debts with double-digit interest rates, you could save thousands with debt consolidation.
Frequently asked questions
Not always. If your current debts have low interest rates, or if you have a large debt with an interest rate lower than the one offered by your potential debt consolidation lender, you may be better off using the snowball method to get out of debt.
That depends on your financial situation. Generally, balance transfer cards work best for small debts you can pay off quickly and debt consolidation loans work best for larger long-term debts, but other factors come into play. Read our guide to balance transfer credit cards vs. debt consolidation loans to learn more.
Anna Serio is a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY.
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