The Promise and the Trap
Debt consolidation — taking out a single new loan to pay off multiple existing debts — can be a smart move if you have high-interest credit cards or store cards and can qualify for a lower-rate personal loan. The appeal is obvious: one monthly payment instead of several, a lower interest rate, and a clear end date. But consolidation has a dark side: if you consolidate and then run up the credit cards again, you end up deeper in debt than before.
This calculator shows you the honest math: the monthly relief (how much less you pay each month), the total cost (whether the new loan costs more or less over the full term), and the total saving (or cost). A lower monthly payment over a longer term can actually cost you more in total interest, even though it feels like relief. Always look at the total cost, not just the monthly payment.
When Consolidation Works
- You have credit card debt at 20-30% APR and can get a personal loan at 8-12%.
- You're committed to not using the credit cards again (cut them up or freeze them).
- The total cost of the new loan is lower than the total cost of the existing debts.
- You can afford the new monthly payment comfortably.
When It's a Trap
Consolidation becomes a trap when you clear the credit cards, keep them open, and start using them again. Within 12-18 months, the cards are maxed out again AND you have the consolidation loan to pay. You're now deeper in debt than when you started. The fix: if you consolidate, close the credit card accounts. Don't keep them "for emergencies" — that's how the cycle starts.
Related Tools
- Personal Loan Calculator — see the repayment on a consolidation loan.
- Debt Snowball — an alternative to consolidation.
- Budget Calculator — find money to pay off debt faster.
Disclaimer: Finance Atlas is not regulated by the FCA. Estimates only, not financial advice. Always consult a qualified, FCA-regulated adviser.