Debt Consolidation Calculator | InCharge Debt Solutions

Debt Consolidation Calculator

InCharge’s Debt Consolidation Calculator is a smart way to find out if working with a credit card consolidation company will save you money, either through a debt management program or debt consolidation loan. To compare costs for a debt management program, enter the expected interest rate (typically 9-11%) and loan term (3-5 years) on the top half of the page. On the bottom, enter only unsecured debts (credit cards, payday loans etc.). For a DCL, enter expected rate (6% or higher, depending on credit score) and term (3-5 years) on top and any unsecured or secured debt (car, boat, RV) below.

Debt Consolidation Features

Our Debt Consolidation Calculator is here to help you determine if a consolidation loan will save you money.

Debt consolidation is a form of debt relief when you have several different debts and you consolidate (or combine) them into one large debt (or loan).

When you take out a debt consolidation loan, a bank makes one loan to cover all your debts, then you make one monthly payment to cover the new loan. The interest rate on a debt consolidation loan should be far less than what you pay on credit card bills, where the average interest rate is 15.5% and could be as high as 29%.

You can consolidate bills on your own, but it might help to seek help of nonprofit credit counseling  companies.

How to Use the Debt Consolidation Calculator

First, enter the APR interest rate and loan term for a potential consolidation loan. APR is based on your credit score and other factors, so you’ll have to shop around to find what type of rate you can get. Typically, it should range from 10% to as much as 20% or higher, depending on your credit score.

Next, fill out your current debt information. For each credit card or loan insert the total amount you owe in the balance column, your average monthly payment in the next column, and the interest rate your credit card carries. This information will tell you, as of right now, how long it will take for you to pay off your debt by making the current payments, and the amount of interest you’ll end up paying.

Some loans also carry an origination fee, which is a one-time fee based on a small percentage of the loan (usually around 1%). Keep that in mind when comparing the cost of loans.

Once you fill out the information, hit submit. The results will be listed in a table below comparing the cost of your current debt to a potential debt consolidation loan.

When Should I Consider Debt Consolidation?

If you are spending too much time keeping up with too many bills and payment deadlines, it’s time to look at debt consolidation. Fill out the categories in the calculator and look at the results table. What you want to see is a combination of two things: The total remaining interest and the monthly payment is lower on the proposed consolidation loan than what is shown on your current debt. If both of those are true, a consolidation loan is a good bet.

To speed up the process, take the money you save on interest and add it on to your monthly payment. That will shorten the loan term, which means you are shortening the amount of time interest can add up. That will save you money.

For example, let’s say the total balance on your credit cards is $10,000 with an interest rate of 20%. You make payments of $400 each month. It will take you 33 months to pay off the debt, while paying an additional $3,043 of interest.

Now, with a three-year consolidation loan at 13% interest, your monthly payment is down to $337 and you accumulate only $2,130 of interest. That’s $913 in savings.

If you put $400 monthly payments on the consolidation loan, the savings would be $1,318 and you would be debt free six months sooner.

Let’s keep all the numbers the same, and change one variable. Stop eating out and clothes shopping and up the monthly payment on the current debt to $600.

Now the results indicate you would pay $317 more in interest with the same a three-year consolidation loan. What you would need to do is pay off the loan in less than 36 months. Continue the $600 monthly payments on the consolidation loan, and it would be paid off in 19 months and save $725.

Realistically, if you find a loan with a low enough interest rate, you should be able to save money with a consolidation loan – as long as your monthly payments aren’t too low.

Alternative to Debt Consolidation Loan

Debt consolidation can also be done through a credit counseling agency which works with lenders on your behalf to reduce interest rates and monthly payments in a debt management program. You make one monthly payment to the debt management company, and they disperse the funds to your creditors in agreed upon terms. The goal in a debt management program is to eliminate debt in 3-to-5 years.

Definition of Calculator Terms

Annual Percentage Rate (APR): The amount of interest charged on a debt for a whole year, including interest, fees, and any other costs. It is used most often in computing the cost of credit cards. The formula works like this: Average daily balance divided by number of days in billing cycle (typically 30), multiplied by the periodic daily interest rate (PDR), which is then multiplied by the number of days in a billing cycle (30). For example: If you owed $1,000 on a credit card at 15% APR for one month, your interest payment would be $40.99 for one month. The math involved is 1,000/30 = 33.33 x PDR (15/365 = .041) x 30 = $40.99.

Balance: The amount you still owe on your debt. It’s computed by adding all purchases in billing cycle, plus whatever fees were involved in those purchases (example: fee for using ATM), plus amount unpaid from previous billing cycle (if not already paid in full) and applicable interest rate charge.

Monthly Payment: Amount you expect to pay on your debt every month.

Yearly Rate: The amount of interest charged over the course of 12 months. Also known as the Annual Percentage Rate or APR.

Loan Term: The amount of time you have to pay off a loan. Loan term is measured in months. The longer the loan term, the more time interest accumulates, making the loan more expensive. The shorter the loan, the less interest you’ll have to pay.

Loan Origination Fee: Some loans have an origination fee, which is a one-time fee charged by the creditor to process your loan. It’s a small percentage of the total loan, usually 1%. If you take a $100,000 loan with a 1% origination fee, you’ll be charged $1,000 up front.