Debt Consolidation Calculator

Article byHarsh Katara
Edited byPallabi Banerjee
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Debt Consolidation Calculator?

Debt consolidation is when the person who has borrowed money would like to merge its existing multiple loans that are bearing high rates of interest  with low  rates of interest and turn them into   a consolidated loan and further, the person who has borrowed money could also apply their savings which are made monthly in repayment.  

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This will enable the borrower to save interest and will help reduce the debt burden. Here, the debt consolidation calculator will make all such calculations easy. Thus, it is a tool that decides the viability of loan consolidation by making different levels of comparison. The comparison will be made based on different criteria like monthly payment, total interest, or payoff length.

Debt Consolidation Calculator Explained

The debt consolidation calculator is a form of restructuring of debt using a tool that combines many loans together with the aim to achieve a lower interest rate and as a result, lower monthly instalments.

If the calculator for debt consolidation is able to calculate correctly, them it is possible to get a fair amount for both. This will lead to less complexity and easy management of loan and their repayment each month. It makes the process hassle free and time saving.

In the calculator, the borrower has to enter the details of every kind of loan, be it related to property, vehicle, credit cards, etc. Then the consolidated loan amount is changed with the rate of interest suitable for the borrower and monthly instalment that will meet their budget. Thus, using this tool, the borrower can adjust the terms and conditions and finally arrive at an amount that is suitable for their budget and their financial goal.

However, the process of calculator for debt consolidation has its own pros and cons. So, it is necessary to understand the method and what it does in detail so as to select a good calculator that will provide the best solution.

It is also important to remember that all loans cannot be consolidated, and therefore, a borrower should not have the expectation of this from any type of loan they have taken. Another noteworthy fact of loans and credit card debt consolidation calculator is that this process affects the credit score to some extent. Since the loan interest and installment are reduced, it leads to an assumption of afall in creditworthiness, affecting the score. However, this is temporary, even though it may affect the score by many points. Thus, even though it makes the debt management process straightforward, people with lower credit score levels should avoid it.

How To Calculate?

There are some steps to be followed for the entire process as given below:

Step #1 – First, find out the present value of the outstanding balances on the multiple loans

PV = L*[1-(1+i)-n/r]

Step #2  – Next would be to find out the new installment amount based on existing outstanding balances with a lower rate of interest using the below formula

New Loan Installment = [∑PV*R*(1+R)^N]/[(1+R)^N-1

Step #3 – Now calculate the period within which the debt can be paid off

nPVA = In[(1-PV(R)/L’)-1]/In (1+R)


  • PV is the present value of Outstanding Balance
  • ∑PV is the sum of the present value of outstanding balances
  • L is the existing Payment
  • L’ is the new Payment
  • i is the old rate of interest
  • R is the new rate of interest
  • n is the frequency of payments
  • N is the remaining number of payments
  • nPVA is the number of periodical payments
You can download this Debt Consolidated Calculator Excel Template here – Debt Consolidated Calculator Excel Template

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This method of free debt consolidation calculator to consolidating the loans in such a way so as to reduce loan burden is widely used in the financial world. It allows the borrower to find clarity of many aspects. The first and foremost thing is the question of affordability and decision regarding whether the new instalment is easy for the borrower to handle or not. Secondly is also serves as an avenue to create budget and allocate financial resources for loan repayment, which in turn brings about a discipline in the entire process. Thirdly, in case of free debt consolidation calculator the borrower is also able to put aside some funds for emergency usage, which is very important from the financial planning point of view.


Let us understand the concept of free debt consolidation loan calculator with the help of some suitable examples, as given below:

Example #1

Suppose that Mr. X has two debts outstanding: one is for $45,987, and another one is for $15,788. The interest rate was quite high, so Mr. X decided to convert them into a consolidated loan for four years with a rate of interest of 9.75%.

Based on the given information, you are required to calculate the new installment amount of the consolidated debt


  • We have two loans outstanding one is for $45,987, and the second one is $15,788, and the total outstanding debt would be $61,775
Debt Consolidation Calculator Example 1 (Debt Amount)
  • The rate of interest would be 9.75%/12, which is 0.81%
Debt Consolidation Calculator Example 1 (Monthly Rate)
New Loan Installment = [∑PV x R x (1+R)^N]/[(1+R)^N-1
Debt Consolidation Calculator Example 1 (New installment)

= [61,775 x 0.81% x (1+0.81%)^48] / [(1+0.81%)^48-1]

= $1,559.37

Hence, if Mr. X wishes to consolidate the loan, he must pay $1,559.37 monthly for four years.

Example #2

Sunita Williams has taken two loans and the details of which are given below:

Sunita has recently received an offer from the Bank to merge the debt into one, with the duration being the equivalent of the longest outstanding tenure. The current monthly installment she is paying is $619.88 and $913.07, respectively. The rate of interest offered is 9%.

Based on the given information, you must calculate the new installment amount of the consolidated loan and the tenure within which the debt can pay off fully.


We need to calculate the present valuePresent ValuePresent Value (PV) is the today's value of money you expect to get from future income. It is computed as the sum of future investment returns discounted at a certain rate of return more of the current outstanding Debt balance, which can be calculated per the below formula:

Student Loan

  • Rate of interest applicable on monthly basis = 11/12 = 0.92%
Debt Consolidation Calculator Example 2 (Monthly Rate)
  • The remaining period is seven years, which is 84 months.
PV = L*[1-(1+i)-n/r]
Debt Consolidation Calculator Example 2 (Present Value)

= $619.88*[1-(1+0.92%)-84/0.92%]

= $36,202.50

Auto Loan

  • Rate of interest applicable on monthly basis = 10/12 = 0.83%
Example 2 Auto Loan (monthly rate)
  • The remaining period is five years which is 60 months.
PV = L*[1-(1+i)-n/r]
Example 2 Auto Loan (Present Value)

= $913.07 x [1 – (1+0.83%)-60 / 0.83%]

= $42,973.75

  • Consolidated outstanding loan
Example 2 Consolidated.png

= $36,202.50 + $42,973.75

= $79,176.25

  • We will now calculate the new installment amount using the formula below, taking a new interest rate, which is (9%/12) 0.75%, tenure of the longest loan outstanding is 84 months.
New Loan Installment = [∑PV x R x (1+R)^N]/[(1+R)^N-1
Debt Consolidation Calculator Example 2 (New installment)

= [79,176.25 x 0.75% x (1+0.75%)^84] / [(1+0.75%)^84-1]

= $1,532.94

Tenure within which to pay off a consolidated loan

  • Now, we shall calculate within what period will the consolidated loan be cleared off
nPVA = In[(1-PV(i)/L’)-1]/In(1+i)
Debt Consolidation Calculator Example 2 (nPVA)

= In [{(1-79,176.25*(0.75%)/1,532.94}-1]/In(1+0.75%)

= 65.58 months

Hence, the debt can be cleared off within five and six months with a new instalment.

Therefore, the above examples serve as a very good and detailed explanation for the concept and provides us with the necessary steps and understanding about the calculator and how it is used.


Some notable advantages of the free debt consolidation loan calculator are as given below.


Some disadvantages of the concept are as follows.

  • There could be a modest impact on credit score due to the renegotiation of multiple loans into one consolidation loan, as that would reflect the inability to repay the loans.
  • Due to liquidity crunches, the debt is consolidated, which can be issued at a higher interest rate than the individual one. And hence the loan repaid at lower interest would shift to the higher-paying interest rate.

Important Points to be noted

The following points need to be noted while consolidating the debt

  • The borrower should have multiple debts outstanding
  • Either Bank would have offered to the borrower to consolidate the loans at a lower rate due to his good credit score, or the borrower would wish to consolidate if he defaults on multiple loans.
  • There could be terms such as minimum outstanding loan amount should be $100,000 in certain cases to consolidate or minimum tenure remaining should be three or more years.

Hence, whether it’s a secured loanSecured LoanSecured loans refer to the type of loans approved and received against a guarantee or collateral. If they fail to do so, the lending institution acquires the collateral to compensate for the amount that the borrowers were more or unsecured loanUnsecured LoanAn unsecured loan is a loan extended without the need for any collateral. It is supported by a borrower’s strong creditworthiness and economic stabilityread more, the moral of the story is that either the borrower can consolidate those loans by paying less interest and pay it earlier or consolidate the loan and pay it more than earlier due to liquidity crunches. These loans that are merged don’t get deleted but are transferred.

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