The monthly payment usually drops when you consolidate. The real question is whether you’ll pay less in total. Here’s how to check.
Step 1: List what you pay now
For each debt: balance, interest rate and monthly payment. Add up the monthly payments and the interest you pay each month.
Step 2: Estimate the new cost
- The amount added to your mortgage, including any costs rolled in
- The new rate on that amount
- The new monthly payment
Step 3: Compare monthly and total
A worked example with round, illustrative numbers: $40,000 of credit card debt at about 20%.
- Keep paying $1,000 a month on the cards: paid off in about 5½ years, with roughly $26,500 in interest.
- Add it to a mortgage at 6% over 25 years: about $258 a month, but roughly $37,000 in interest over 25 years.
- Add it to a mortgage at 6%, and keep paying $1,000 a month toward it: paid off in under 4 years, with roughly $4,700 in interest.
The lower rate only saves money if you don’t stretch the debt over decades. See why a lower payment can still cost more.
Step 4: Add the costs
Subtract legal fees, appraisal, lender fees and any penalty from the savings. See the costs.
The takeaway
Consolidate for the lower rate; keep the payment high to actually get out of debt. See paying it off faster.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.