Debt Consolidation Savings Calculator Formula

Understand the math behind the debt consolidation savings calculator. Each variable explained with a worked example.

Use the Debt Consolidation Savings Calculator

Formulas Used

New Monthly Payment

new_payment = new_monthly_rate > 0 ? current_balance * new_monthly_rate * pow(1 + new_monthly_rate, num_payments) / (pow(1 + new_monthly_rate, num_payments) - 1) : current_balance / num_payments

Total Interest (Consolidation)

new_total_interest = new_monthly_rate > 0 ? (current_balance * new_monthly_rate * pow(1 + new_monthly_rate, num_payments) / (pow(1 + new_monthly_rate, num_payments) - 1)) * num_payments - current_balance : 0

Total Interest (Current Path)

old_total_interest = old_monthly_rate > 0 ? (current_balance * old_monthly_rate * pow(1 + old_monthly_rate, num_payments) / (pow(1 + old_monthly_rate, num_payments) - 1)) * num_payments - current_balance : 0

Interest Savings

savings = (old_monthly_rate > 0 ? (current_balance * old_monthly_rate * pow(1 + old_monthly_rate, num_payments) / (pow(1 + old_monthly_rate, num_payments) - 1)) * num_payments - current_balance : 0) - (new_monthly_rate > 0 ? (current_balance * new_monthly_rate * pow(1 + new_monthly_rate, num_payments) / (pow(1 + new_monthly_rate, num_payments) - 1)) * num_payments - current_balance : 0)

Variables

VariableDescriptionDefault
current_balanceTotal Current Debt(USD)25000
current_rateCurrent Weighted Avg Rate(%)22
new_rateConsolidation Loan Rate(%)10
loan_termConsolidation Loan Term(years)5
old_monthly_rateDerived value= current_rate / 12 / 100calculated
new_monthly_rateDerived value= new_rate / 12 / 100calculated
num_paymentsDerived value= loan_term * 12calculated

How It Works

Debt Consolidation

Consolidation replaces multiple high-rate debts with a single lower-rate loan.

When It Makes Sense

  • Your new rate is significantly lower than your current average rate
  • You will NOT run up new debt on the freed credit cards
  • The total cost (including fees) is less than your current path

    • Formula

    Both scenarios use the standard loan payment formula:

    M = P x r x (1+r)^n / [(1+r)^n - 1]

    The difference in total interest between old and new rates is your savings.

    Worked Example

    $25,000 at 22% average vs consolidation at 10% for 5 years.

    current_balance = 25000current_rate = 22new_rate = 10loan_term = 5
    1. 01New payment = $25,000 at 10% for 60 months = $531
    2. 02New total interest = $531 x 60 - $25,000 = $6,874
    3. 03Old total interest at 22% = $707 x 60 - $25,000 = $17,418
    4. 04Interest savings = $17,418 - $6,874 = $10,544

    Ready to run the numbers?

    Open Debt Consolidation Savings Calculator