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    Debt / consolidation

    Does consolidating your debt actually help

    The comparison usually quoted — new APR against the old average — is flattering, because the average is weighted by balance while the pain is weighted by payment. This runs both schedules to the end at the same monthly outlay, which is the only comparison that means anything.

    Balance$16,000Weighted APR21.94%Loan APR12.00%
    Interest saved
    $5,409
    against the current payments
    New payment
    $356
    was $440 across 3 debts
    Months saved
    7
    60 months on the new loan
    Break-even
    none
    no fee to recover
    Two schedules, same outlay
    The comparison only means something when both sides spend the same money each month.
    saves $5,409
    Two schedules, same outlay
    MeasureCurrent debtsConsolidation loan
    Amount financed$16,000$16,000
    Monthly payment$440$356
    Months to clear6760
    Total interest$10,764$5,355
    Total paid$26,764$21,355
    Weighted / nominal APR21.94%12.00%
    Origination fee$0$0
    Verdictconsolidating winsConsolidating saves 5,409 in interest over the same outlay.

    The weighted APR is the number that gets quoted, but it is not the number that decides: what matters is total interest at the same monthly outlay. A loan that halves the payment and doubles the term can look cheaper and cost more.

    Inspect the model
    Choose a quick result view, a scaled comparison, or the complete diagnostic set.
    Balance against time
    The consolidation loan starts lower because the fee is financed into it, then falls faster.
    Balance against time0.0003584.007168.001.075e+41.434e+41.792e+4001212242436364848606072728484Current debtsConsolidated
    Interest against the loan term
    Longer terms lower the payment and raise the interest — the trade the headline rate hides.
    Interest against the loan term0.0002724.965449.918174.871.090e+41.362e+424 mo24 mo36 mo36 mo48 mo48 mo60 mo60 mo72 mo72 mo84 mo84 mo120 mo120 moInterest
    Canonical equations
    The exact relationships implemented by this engine.

    Σ(balance × APR) / Σ balance · Weighted by balance, not by payment.

    P = A·r / (1 − (1+r)^−n) · The consolidation loan payment.

    I_current − I_consolidated · At the same monthly outlay.

    fee / monthly saving · Months to recover the fee.

    finance methodology

    A clear path from inputs to results.

    The comparison usually quoted — new APR against the old average — is flattering, because the average is weighted by balance while the pain is weighted by payment. The honest comparison runs both schedules to the end at the same monthly outlay.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Enter each debt as balance, APR and minimum payment.
    2. Set the consolidation loan rate, term and any fee.
    3. Add anything extra you can pay each month.
    4. Read the interest saved, the months saved and the break-even on the fee.

    The formula

    APRw=∑biri∑bi  ;  Isaved=Icurrent−Iloan\text{APR}_w = \frac{\sum b_i r_i}{\sum b_i} \;;\; I_{saved} = I_{current} - I_{loan}

    Reference: Level-payment amortisation with the weighted average taken by balance, the convention lenders quote (Broverman, Mathematics of Investment and Credit).

    Worked example

    $13,000 across two cards

    Inputs
    • $5,000 at 24% with a $150 minimum.
    • $8,000 at 18% with a $200 minimum.
    • A 12% consolidation loan over 60 months, no fee.
    Calculation path
    1. 1

      The weighted APR is (5,000 × 24% + 8,000 × 18%) / 13,000 = 20.31%.

    2. 2

      The new payment is $289.18 a month against $350 now.

    3. 3

      Running the current debts at their minimums to extinction costs far more interest, because the minimums are set as a share of a declining balance.

    4. 4

      The consolidation loan clears in 60 months at a fixed payment.

    5. 5

      The interest saved is the difference between the two totals, not the difference between the rates.

    Result

    20.31% weighted · $289.18 a month · interest saved.

    Interpreting the result

    The number that decides the question is total interest at the same monthly outlay, and it can go either way: a loan that halves the payment by doubling the term often costs more, because the balance sits at the new rate for twice as long. The weighted APR is a summary, not an answer.

    Assumptions & limitations

    • Each debt is amortised at its stated APR and minimum payment.
    • Spare cash is applied to the highest-rate balance first, which is the cheapest order.
    • The consolidation loan is a fixed-rate level-payment instalment loan.
    • No late fees, no promotional rates expiring and no credit-score effect.

    Frequently asked questions

    Why is the weighted APR not the same as the effective cost?

    Because it ignores the term. A 20% average over three years costs less than a 12% loan over seven, and the weighted average cannot see that.

    What about the fee?

    A fee is recovered out of the monthly saving, so the break-even is fee ÷ monthly saving. A loan with a 5% fee and a $20 saving takes years to pay for itself.

    Should I close the cards?

    Usually not immediately — closing them reduces available credit and raises utilisation. Most advisers suggest keeping them open with a small recurring charge.

    Is a lower payment always worse?

    Not always — cash flow matters if the current minimums are unaffordable. But it is a different objective, and it should be chosen deliberately rather than sold as a saving.

    Does consolidation hurt my credit?

    It replaces revolving utilisation with an instalment loan, which usually helps the score after a few months, at the cost of a hard inquiry at the start.

    Methodology last reviewed 2026-10-22. Results are informational and not financial or engineering advice — see our disclaimer.