How this instrument works
A debt consolidation loan replaces several separate bills — usually credit cards, sometimes a mix of cards and a personal loan — with a single fixed installment. The borrower it serves is someone juggling multiple due dates and minimum payments, not a lender: the lender already knows New consolidated loan rate, % before an offer ever reaches you. Current combined monthly payment, $ has to be typed in rather than computed, because card minimums usually follow their own rule, often the greater of a flat floor near $25 or one to three percent of the balance plus that month's interest, so the combined total shrinks on its own as balances fall. This instrument compares that real, gathered figure against one clean number a new loan would replace it with.
The new payment itself is an ordinary fixed-installment formula: it sizes a level monthly payment so a balance of D, charged interest at monthly rate r, reaches exactly zero after N payments. What is specific to consolidation is the subtraction that follows — savings is simply the old combined payment minus that new figure, which is why a rate that looks attractive can still produce a negative result if the new term is short enough to keep the required payment high.
The sheet deliberately stops at the monthly comparison. It excludes any origination fee or balance-transfer fee rolled into the loan, it treats New consolidated loan rate, % as fixed for the entire term even though many promotional offers reset to a higher rate after 12 to 18 months, and it says nothing about total interest paid over the full loan versus whatever mix of terms the original cards would otherwise have taken to clear — a lower monthly payment stretched over more months can cost more in interest even at a friendlier rate.
- Add up every balance you want to combine and enter it as Total debt to consolidate, $.
- Total what you currently pay across all of those accounts each month — not the balance — and enter it as Current combined monthly payment, $.
- Enter the rate an actual consolidation loan or balance-transfer offer quoted you under New consolidated loan rate, %.
- Set New loan term, months to the offer's length; New monthly payment updates instantly.
- Read Monthly savings — a negative number means the new loan would cost more each month than what you already pay.
Worked example — $20,000 across cards into a 10%, 3-year loan
Twenty thousand dollars sits spread across several cards that together cost $800 a month (Current combined monthly payment, $ = 800). A bank quotes a consolidation loan at 10% over 36 months, so Total debt to consolidate, $ = 20000, New consolidated loan rate, % = 10, and New loan term, months = 36. Feeding those into the formula gives New monthly payment = $645.34.
That is $154.66 less than the $800 being paid now, the figure Monthly savings shows for these exact inputs. The saving is real cash freed up every month, but it says nothing about total interest paid across the three years versus whatever mix of payoff dates the original cards would have taken — a lower monthly payment stretched over a longer term can still cost more in interest even at a friendlier rate, which is worth checking separately with a full amortization view before signing.
Questions
Why do I have to type in my current monthly payment instead of the sheet calculating it?
Because it usually isn't one clean formula. Several cards each carry their own balance, rate, and minimum-payment rule — often the greater of a flat floor like $25 or one to three percent of the balance plus that month's interest — so the combined total shrinks on its own as balances fall. Current combined monthly payment, $ asks for what your statements actually show today, which this instrument then compares against a single fixed installment that stays flat until payoff.
Can Monthly savings come out negative?
Yes, and that is the point of running the numbers before signing anything. If New consolidated loan rate, % is high relative to your existing mix, or New loan term, months is short, the new fixed payment can exceed what you already pay — the sheet shows a negative Monthly savings rather than hiding it. A negative result means this particular offer would raise your monthly bill, whatever the marketing around it claims.
Does a lower monthly payment always mean I save money overall?
No. Monthly savings compares only the payment size, not total interest paid over the life of the new loan. Stretching Total debt to consolidate, $ across a longer New loan term, months can lower the monthly figure while the loan accrues interest for more months on a balance that falls only slowly. Multiply New monthly payment by New loan term, months to see the total handed to the lender before deciding.
What happens once a promotional or teaser rate expires?
This sheet has no way to know — New consolidated loan rate, % is treated as fixed for the whole term entered. Many balance-transfer cards and some consolidation loans quote an introductory rate for 12 to 18 months that resets to a much higher standard rate afterward. If your offer has a teaser period, rerun the sheet at the post-promotional rate to see the payment you would actually carry once it resets.
Who typically runs this calculation?
Someone carrying several revolving balances — usually credit cards, sometimes a mix of cards and a personal loan — who has been offered a single loan or balance-transfer card to combine them into one bill. The comparison matters most to a borrower juggling multiple due dates and minimum-payment rules each month, not to a lender pricing the loan, since the lender already fixed New consolidated loan rate, % before the offer arrived.
Does closing the old accounts after consolidating save even more?
Not automatically, and this sheet doesn't model it. Paying off cards without closing them keeps available credit open, which can help a utilization ratio; closing them can shorten average account age and reduce that same available credit. Either choice affects a credit score calculation this instrument doesn't touch — it only compares the two payment amounts entered above.
References
- CFPB — Debt collection and debt relief consumer tools
- Federal Reserve — Consumer Credit statistical release (G.19)
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.