Debt Consolidation Loans: Compare Rate, Fees, Term, and Total Cost

A debt consolidation loan is generally a new loan used to pay several existing debts. After the payoff, you make payments on the new loan. Consolidation can simplify payment management, but it does not erase the principal you owe.

What may change

The new loan can change the interest rate, term, monthly payment, fee structure, and whether the payment is fixed. Those terms depend on the actual offer and your eligibility. A lower monthly payment does not by itself prove that the loan is cheaper; extending the term can increase total interest even at a lower rate.

Compare total repayment

Review the annual percentage rate, origination fee, monthly payment, number of payments, and total of payments. If a fee is deducted from the loan proceeds, confirm that enough money remains to pay the intended debts. Also check whether the rate is fixed or variable and whether there is a prepayment penalty.

Use the exact quoted terms rather than a market average. Rates and fees change, and an offer made to one borrower does not establish what another borrower will receive.

How Return Measure models consolidation

The Debt Payoff Planner adds all entered balances and replaces them with one fixed-rate loan. It converts the entered annual rate to a monthly rate and uses the standard fixed-payment amortization formula over the entered term. The comparison reports the calculated monthly payment and total interest.

The model does not include an origination fee, a variable rate, optional insurance, late fees, or an extra payment toward the new loan. Add those costs separately when evaluating an actual offer. The Calculation Methodology lists every assumption.

Consolidation is different from settlement

Debt consolidation generally refinances existing debt without asking creditors to accept less than the amount owed. Debt settlement involves attempting to resolve a debt for less than the full balance and can involve different fees, risks, and credit consequences. Do not treat the two terms as interchangeable.

A practical review list

• Compare the new total repayment with your current payoff plan, not only with your current minimum payments.
• Include every fee and verify the net loan proceeds.
• Confirm whether the offered rate is fixed for the full term.
• Check that the payment fits your budget without relying on new card debt.
• Read the agreement and verify the lender through appropriate state or federal resources before providing sensitive information.