Debt Consolidation Calculator

By Bill Lyons | Updated on February 2, 2024

If you’re looking for ways to get out of debt, you’re not alone. Many people struggle with paying off debt and keeping their finances in good shape. Debt can even have a negative impact during the mortgage underwriting process and make it harder to purchase a home. However, it can be difficult to manage multiple bills coming your way and expensive to deal with high-interest debt. That’s where a debt consolidation loan can serve as a potential solution.

Debt consolidation is a type of refinancing that involves rolling multiple debts into one payment. This can be a great option if you’re currently struggling with debt or if you simply want to take a more streamlined approach to tackling debt repayments.

Our debt consolidation calculator can help you determine whether a debt consolidation loan is right for you. With that said, here’s everything you need to know to get started.

What Is Debt Consolidation?

For those unfamiliar, debt consolidation is a method of repaying debt while potentially lowering interest rates and streamlining payments. It often involves getting a loan to repay your debts, then repaying the loan company rather than continuing to pay individual payments, which usually require great organization and the willingness to pay various interest rates.

How to Consolidate Debt: 5 Methods

Consolidating debt is a relatively simple process that can help you remedy a high DTI and improve your financial wellbeing. Nevertheless, there are several methods of debt consolidation to choose from, such as:

Cash-Out Refinance

A cash-out refinance is a type of loan that allows you to replace your current mortgage with a larger mortgage, essentially allowing you to get a new mortgage and access a lump sum of cash at the same time. With a cash-out refinance, you can leverage your home equity to get an infusion of cash, which you can then use to pay off various debts and take care of large expenses.

So what makes a cash-out refinance good for consolidating debt? There are a couple of reasons why a cash-out refinance can be ideal for debt consolidation. First of all, refinancing your mortgage can help you secure a lower rate if interest rates have dropped since you took out your original home loan. This means that you can end up paying less in interest over the life of the loan.

A cash-out refinance can also be a good debt consolidation tool because these loan types tend to have lower rates than credit cards. Thus, by shifting your debt from your credit cards to a cash-out refinance loan, you can effectively consolidate your debt at a lower rate.

Home Equity Loans (HELOAN)

If you’re a homeowner with equity in your home, a home equity loan (HELOAN) or home equity line of credit (HELOC) may be the best debt consolidation option. In case you’re unaware, your home equity is the appraised value of your home minus the amount owed. On the one hand, a HELOAN offers a lump sum with a fixed rate. On the other hand, a HELOC provides a credit line with a variable rate. Either way, if you have owned a home for at least a few years, you may be a great candidate for this method of debt consolidation.

No matter which method you choose, be advised that these loans are akin to taking out a second mortgage on your home. Moreover, securing these loans can sometimes be a complex process, meaning you will have to wait longer to receive the funds.

Balance Transfer Credit Cards

One of the top debt consolidation methods is using a balance transfer credit card. These are highly popular because they often come with little to no interest for a promotional period of up to 21 months. Moreover, it’s also one of the fastest and easiest methods to get approved for.

While this can be an excellent method of consolidating your debt to pay it off quicker, it’s not for everyone. However, if you are unsure if you’re capable of paying off the credit card during the promotional period, you’re better off steering clear of this method. Otherwise, you could be charged even more interest, making this a pointless move if your end goal is debt consolidation.

Retirement Accounts

Another highly accessible option when consolidating debt is using your retirement accounts. If you have a retirement account such as a Roth IRA or 401k, you may be able to borrow enough to repay your credit card debt. Many enjoy this method because it offers lower interest rates and does not affect your credit score.

However, using this method comes with stiff penalties. If you can’t repay it, you will have a smaller retirement fund, and if you have to leave your job, you will need to repay the loan much quicker than expected. Therefore, this is often considered a last resort when it comes to debt consolidation.

Debt Management Programs

Lastly, debt management programs offer borrowers a method of consolidation and repaying their credit debt without filing for bankruptcy. These programs involve working with a non-profit organization or credit counseling agency. These organizations negotiate on your behalf in order to consolidate all of your accounts and get one lower monthly payment.

However, choosing this option means closing all of your credit card accounts. This typically lowers your credit score and makes it more difficult to get approved for credit cards in the short-term. However, your credit score will likely improve if you stick to the payment plan.

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Pros and Cons of Consolidating Debt

If you’re curious about the pros and cons of debt consolidation, the most prominent ones are as follows:

Pros of Debt Consolidation

• Repay your debt faster: Since debt consolidation often lowers payments and interest rates, you can repay your debt faster.
• Improve credit score: In the short-term, debt consolidation can lower your credit score. However, if you stick to the repayment plan, you will likely boost your credit over time.
• Simplify your finances: Debt consolidation allows you to go from many payments to one single payment for all accounts, thus simplifying your finances.

Cons of Debt Consolidation

• Financial counseling not required: One major con of debt consolidation is that financial counseling is not required. If you do not learn from the financial mistakes you’ve made in the past, you may end up in the same predicament in the future.
• Hidden costs: Depending on your chosen method, debt consolidation may have hidden costs. For instance, closing costs, annual fees, transfer fees, and so on are relatively common.
• Missing payments: Almost no one seeks a loan with the goal of missing a payment. However, missing a loan consolidation payment can undermine your efforts and negatively impact your credit profile.

Try Out Our Free Debt Consolidation Calculator

Getting out of debt doesn’t have to be a nightmarish experience. If you’re in over your head, one of these debt consolidation methods can help change your life for the better. Nevertheless, choosing the best method is a personal decision and one that should not be taken lightly. Keep in mind that all debt consolidation methods have pros and cons, so you should take the time to weigh them out before deciding whether it’s right for you.

In the meantime, please use Griffin Funding’s debt consolidation loan calculator to see if getting a debt consolidation loan is right for you. This useful tool provides you with a simple way to estimate how much you can save on debt payments if you take out a debt consolidation loan.

In particular, our debt consolidation calculator can help you better understand how to tap into your home’s equity and leverage it to pay off your existing debts! Try out our debt consolidation loan calculator and reach out to Griffin Funding to learn more about how you can use cash-out refinance loans, HELOANs, HELOCs, and other home financing products to consolidate debt. Make sure to take a look at the other financing products we offer as well, such as VA loans, bank statement loans, recent credit event loans, and more.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.