# How do I Calculate Debt Consolidation?

i Jupiterimages/Comstock/Getty Images

Debt consolidation is the process of taking out one loan that is used to pay off other debts. This loan can be used for credit card bills or other loans or bills. The borrower hopes to pay lower monthly payments to one source over a period of time rather than paying a higher amount to various sources in a shorter amount of time. If given the right interest rate and repayment terms, you save money by consolidating the debt. Before opting to take this route, calculate your debt consolidation.

## Step 1

Create a budget to see how much money you have going out to bills and how much you have coming in. On your expense list, include variables and fixed expenses in case you need to make some adjustments later. Fixed items are expenses that never change and include mortgage payments, tuition, car payments and insurance. Variable expenses are items that vary in amount and frequency; these includes utilities and medical bills as well as entertainment and personal maintenance. When calculating your expenses, it is important to use the balance amount and not the amount that you pay each month. This gives you a starting point to know exactly how much you are consolidating.

## Step 2

Contact your financial institution or a debt consolidation company and find out what debt consolidation loan you qualify for. The institution or company will give you the amount of money that they can consolidate along with an interest rate and the term in which the loan needs to be repaid. If you choose to contact a debt consolidation company, research the company through sources such as the Better Business Bureau to see if there have been any complaints, lawsuits or government actions taken.

## Step 3

Calculate the information that is given to you and find out how much your monthly payments are going to be. If you have a balance of \$5,000 for all of your debt and you qualify for a 72 month loan with 11 percent interest, you calculate the amount of interest you will pay on the balance of \$5,000, add any taxes and fees that may be associated and include the length of the term. This gives you the amount of money you will pay each month. In order to find out the amount of taxes and fees, contact the financial institution or debt consolidation company to see how much the loan origination fee is and if there are any additional taxes or fees that will be added on. Take into consideration how often the interest on your loan is compounding and use an online debt consolidation calculator. It is important to understand that calculating 11 percent on the entire loan results in a different figure from a loan that has compounded interest.