Yes, consolidating $25,000 of credit card debt at 26% APR into a 14% loan with a 5% origination fee saves you $8,171 in interest over 60 months. You also pay $136.19 less each month.
The math
Inputs
| Credit card balance | $25,000 |
|---|---|
| Card APR | 26% |
| Loan APR | 14% |
| Loan term | 60 months (5 years) |
| Origination fee | 5% |
The formula in words
Monthly payment = amount × r ÷ (1 − (1 + r)^−n), with r = APR ÷ 12 and n = 60 months. Work it out for the cards at 26% and for the loan at 14%. Total interest = payment × months − amount. Saving = card interest − (loan interest + fees).
Step by step
| Option | Monthly payment | Time | Interest | Fee | Total paid |
|---|---|---|---|---|---|
| Keep the cards at 26% | $748.51 | 60 months | $19,911 | $0 | $44,911 |
| Consolidation loan at 14% | $612.32 | 60 months | $10,424 | $1,316 | $36,739 |
| Keep the cards, pay $612.32 | $612.32 | 101 months | $36,688 | $0 | $61,688 |
Result
- Loan amount needed to net the balance after the fee: $26,316
- Origination fee: $1,316
- Loan monthly payment: $612.32
- Loan total interest: $10,424
- Cards paid off in the same time: monthly payment: $748.51
- Cards paid off in the same time: total interest: $19,911
- Saving from consolidating: $8,171
- Monthly payment difference: $136.19
- Cards at the loan's $612 payment: time to pay off: 101 months (8 years and 5 months)
- Cards at the loan's $612 payment: total interest: $36,688
Assumptions
- Both options pay the debt off over the same term with fixed monthly payments and no new card charges.
- The 5% origination fee is taken out of the loan, so you borrow $26,316 to clear $25,000.
- Loan approval and your actual rate depend on your credit and income.
- The 5% origination fee is taken out of the loan, so the loan has to be bigger than the balance to clear the cards. That larger amount is what the payment and the interest are based on.
- These are estimates that show how the math works, not financial, tax or legal advice. Lenders, card issuers and the IRS can calculate slightly differently.
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What the $8,171 saving means for you
The $8,171 is the difference between the total interest you would pay on the cards over 60 months and the total interest plus origination fee on the loan. In other words, even after paying the 5% fee, you come out ahead by $8,171. That is real money that stays in your pocket instead of going to interest.
You also get a lower monthly payment: $612.32 on the loan versus $748.51 on the cards. That $136.19 difference can ease your budget each month. But the saving only happens if you actually pay the loan off over the full 60 months and do not add new card charges.
Think of the $8,171 as the reward for taking action. If you do nothing, the cards keep charging 26% APR. Over 60 months, that higher rate costs you $19,911 in interest. The loan, even with the fee, costs $10,424 in interest plus the $1,316 fee. The gap is your saving.
What drives the saving
The main driver is the interest rate drop from 26% to 14%. Over 60 months, that lower rate cuts the interest you pay dramatically. The origination fee adds $1,316 to what you owe, but the interest saved is much larger.
Another driver is the fixed term. The loan forces you to pay off the debt in 60 months. If you kept the cards and only paid $612.32 each month, it would take 101 months and cost $36,688 in interest. The loan's structure pushes you to finish faster and cheaper.
The loan amount also matters. Because the 5% fee is taken out of the loan, you borrow $26,316 to net $25,000. That larger amount is what the payment and interest are based on. Even so, the lower rate wins.
How you could change the outcome
Using only the numbers given, you can see that the saving depends on the loan term and the fee. If the fee were lower, the saving would be higher. If the loan APR were higher, the saving would shrink. But with the given numbers, the 14% loan with a 5% fee is clearly better than the 26% cards over 60 months.
You could also change the outcome by paying more than the minimum. But the results here assume fixed payments for the full term. Any extra payment would reduce total interest, but we do not have numbers for that scenario.
What if you chose a shorter or longer term? The results only cover 60 months. A different term would change the payment and total interest, but we cannot calculate that here. Stick to the given numbers to compare fairly.
Practical next steps
First, confirm the exact origination fee and APR with the lender. The 5% fee is taken out of the loan, so you need to borrow $26,316 to net $25,000 and clear the cards. Make sure the lender discloses all costs.
Second, check that you can comfortably afford the $612.32 monthly payment for 60 months. If you miss payments, the saving could disappear.
Third, stop using the cards. If you run up new balances, you lose the benefit of consolidation. Consider cutting up the cards or freezing them.
Finally, remember these are estimates. Your actual rate and approval depend on your credit and income. Confirm the details with your lender and card issuer before you sign.
Frequently asked questions
What if I pay the loan off early?
The results assume you pay the loan over the full 60 months. Paying early would reduce total interest, but we do not have numbers for that scenario. Check with your lender about any prepayment penalties.
Will this hurt my credit score?
The results do not cover credit score effects. Consolidating may involve a hard inquiry and a new account, which can affect your score. Check with your lender and monitor your credit.
Can I get a lower origination fee?
The 5% fee is given. A lower fee would increase your saving, but we cannot calculate a new number. Shop around and compare offers from different lenders.
What if I keep using my credit cards?
The saving assumes no new card charges. If you add new debt, you could end up worse off. The math only works if you stop using the cards and pay off the loan as planned.