Debt consolidation calculator

How to use a debt consolidation calculator to attack your debt

When you’re wading in a sea of debt, it can feel overwhelming to stay afloat. This debt consolidation calculator is designed to help determine if debt consolidation is right for you. Fill in your outstanding loan amounts, credit card balances and other debt. Then see what the monthly payment would be with a consolidated loan. Try adjusting the terms, loan types or rate until you find a debt consolidation plan that fits your goals and budget.

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Tap into the value you have in your home to get the funds you need.

5 ways to consolidate debt

Once you run the numbers, you’ll want to choose a method to consolidate your debt. There are pros and cons to each option and, as always, you’ll want to shop around for financial products to ensure you’re getting the best rate and terms.

1. Consider a personal loan

A personal loan is an unsecured loan that, unlike a credit card, features equal monthly payments. Loan amounts vary with credit score and history, but generally top out at $50,000. While banks and credit unions offer personal loans, subprime lenders are also very active in this market so it’s important to shop carefully and understand rates, terms and fees.

Because a personal loan is unsecured, there are no assets at risk, making it a good option for a consolidation loan. However, be aware that a large, prime-rate loan requires good credit, and rates are typically higher for personal loans than for home equity loans. Check out Bankrate’s pre-qualification flow to get the best personal loan rate for you.

2. Tap your home equity

If you’re a homeowner with strong credit and financial discipline, tapping your home equity could be a good debt consolidation option for you. Home equity loans usually offer lower interest rates and larger loan amounts than personal loans or credit cards. Home equity loans have longer repayment periods, which can mean lower monthly payments but also more interest over the life of the loan. There are two types of home equity loans: a fixed-rate, lump-sum option and a home equity line of credit, or HELOC, which acts like a credit card. Learn more about each option and which may be best for your situation.

Home equity loans can be risky as a method of debt consolidation if you don’t have the discipline to use the money for its intended purpose and pay down the loan on time. For starters, you could lose your home if you fail to repay the loan because you’re using it as collateral to consolidate debt that’s now unsecured. A HELOC comes with variable interest rates -- and that can add up if rates fluctuate over time.

Another drawback to consider under the new tax law is that you won’t be able to deduct the mortgage interest on a home equity loan unless you use it for major home improvements that add value to your property.

3. Use a credit card balance transfer

Transferring your debt to one credit card, known as a credit card balance transfer, could help you save money on interest, and you’ll have to keep track of only one monthly payment. You’ll need a card with a limit high enough to accommodate your balances and an annual percentage rate (APR) low enough and for a sufficient time period to make consolidation worthwhile.

Getting an unsecured card ensures you won’t risk any assets, and it’s often quicker and easier to get a balance transfer credit card than a bank loan. Before applying, ask about balance transfer limits and fees. Also, you generally won’t learn the APR or credit limit until after and unless you’re approved. Using one credit card as the repository for all your card debt is fighting fire with fire, so it’s smart to be cautious if this is your plan for debt consolidation. Once you’ve transferred debts to one card, focus on paying that card down as fast as possible.

4. Look to savings or retirement accounts

The wisdom of using saving or retirement accounts as debt consolidation options depends on your debt load and personal situation. You may be able to use the following types of accounts as debt options:

Savings account

Borrow from savings and it isn’t lost interest you worry about. It’s about competing needs for that money. In other words, it’s risky to leave yourself without emergency funds just to consolidate debt because you may have to borrow for for an unexpected expense in a hurry at whatever rate you can get.

401 (k)

Many 401(k) plans will let you borrow against your retirement savings at relatively low interest, and you pay that interest to yourself. But if you quit your job or get fired, the entire 401(k) loan becomes due immediately, and there’s a 10 percent penalty added if you fail to repay and you’re under age 59.5. It’s also worth considering that you’ll lose out on anything your investments could have earned if you left them in the 401(k).

Roth Individual Retirement Account

There’s no penalty for borrowing what you’ve deposited in your Roth IRA, but you’ll want to be sure that consolidating debt outweighs the lost principal and compound interest.

5. Explore a debt management plan

If you want debt consolidation options that don’t require taking out a loan, applying for a new card or tapping into savings or retirement accounts, a debt management plan could be right for you. With a debt management plan, you’ll work with a nonprofit credit counseling agency to negotiate with creditors and draft a pay-off plan.

You close all credit card accounts and make one monthly payment to the agency, which pays the creditors. But you still receive all billing statements from your creditors, so it’s easy to track how fast your debt is being paid off. With a debt management plan, you’ll get some of the best debt consolidation loan rates (but not lower balances) and an end to over-limit and late fees if you pay as agreed.

Some agencies may work for low or no cost, if you’re struggling. Stick with nonprofit agencies affiliated with the National Foundation for Credit Counseling or the Financial Counseling Association of America, and make sure your debt counselor is certified via the Council on Accreditation.

While you’re on a debt management plan, you won’t be able to reach for credit cards in a pinch because you’ll have to close all your accounts. This will lower your credit score. However, if you keep up with your payments and don’t get deeper into debt, a debt management plan could help improve your credit score long-term.

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