Consolidating $15,000 of credit card debt at 24% APR into a 12% loan over 5 years saves you $5,871 in interest. Your monthly payment drops from $431.52 to $333.67, a difference of $97.85.
The math
Inputs
| Credit card balance | $15,000 |
|---|---|
| Card APR | 24% |
| Loan APR | 12% |
| Loan term | 60 months (5 years) |
| Origination fee | 0% |
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 24% and for the loan at 12%. 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 24% | $431.52 | 60 months | $10,891 | $0 | $25,891 |
| Consolidation loan at 12% | $333.67 | 60 months | $5,020 | $0 | $20,020 |
| Keep the cards, pay $333.67 | $333.67 | 116 months | $23,647 | $0 | $38,647 |
Result
- Loan monthly payment: $333.67
- Loan total interest: $5,020
- Cards paid off in the same time: monthly payment: $431.52
- Cards paid off in the same time: total interest: $10,891
- Saving from consolidating: $5,871
- Monthly payment difference: $97.85
- Cards at the loan's $334 payment: time to pay off: 116 months (9 years and 8 months)
- Cards at the loan's $334 payment: total interest: $23,647
Assumptions
- Both options pay the debt off over the same term with fixed monthly payments and no new card charges.
- No origination fee.
- Loan approval and your actual rate depend on your credit and income.
- 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 $5,871 Saving Means for You
The $5,871 saving is real money that stays in your pocket instead of going to interest. It comes from two places: a lower interest rate and a fixed payoff timeline. With the loan, you pay $5,020 in interest over 5 years. If you kept the cards and paid them off in the same 5 years, you would pay $10,891 in interest. The difference is $5,871.
That saving assumes you make every payment on time and don't add new charges to the cards. If you do add charges, the math changes and the saving shrinks or disappears. The loan also gives you a predictable monthly payment of $333.67, which can make budgeting easier than dealing with fluctuating credit card minimums.
Remember, this is an estimate. Your actual loan rate depends on your credit and income, and lenders can calculate slightly differently. Confirm the exact terms with your lender before you commit.
What Drives the Saving
The main driver is the interest rate drop from 24% to 12%. That halves the rate, so less of each payment goes to interest and more goes to principal. Over 5 years, that difference compounds into the $5,871 saving.
The second driver is the fixed term. Credit cards have no set payoff date if you only pay the minimum. Here, both options assume you pay off the debt in 5 years. But if you tried to pay the cards off using the loan's $333.67 monthly payment, it would take 116 months (9 years and 8 months) and cost $23,647 in interest. That's because the lower payment stretches the timeline and lets interest pile up. The loan forces a 5-year payoff, which locks in the saving.
Finally, the monthly payment difference of $97.85 matters. You free up that cash each month, which you could use to build an emergency fund or pay other bills. But the saving only happens if you don't run up the cards again.
How to Change the Outcome
You can't change the numbers given, but you can change how you use them. If you qualify for a lower rate than 12%, your saving would be larger. If your rate is higher, the saving shrinks. The only way to know your rate is to apply and check with lenders.
You could also choose a shorter loan term. That would raise the monthly payment but cut total interest, increasing the saving. A longer term would lower the payment but raise interest, reducing the saving. The 5-year term here balances both.
Another factor is fees. This example assumes no origination fee. If a lender charges one, it adds to the cost and reduces the $5,871 saving. Always ask about fees upfront.
Lastly, your behavior matters. If you pay off the loan early, you save even more interest, but check if your lender charges a prepayment penalty. If you keep using the cards, you add new debt and the saving is lost.
Practical Next Steps
First, check your credit score and report for errors. A better score can help you get a lower rate. Then, shop around at a few lenders and compare offers. Look at the APR, fees, and terms. Use the loan's monthly payment of $333.67 as a benchmark: can you comfortably fit that into your budget?
Once you have the loan, commit to not using the cards. Consider freezing them or cutting them up. Set up automatic payments so you never miss a due date. If you get a raise or windfall, consider paying extra toward the loan if there's no penalty.
Finally, track your progress. Seeing the balance drop can keep you motivated. And remember, this is an estimate, not financial advice. Talk to a nonprofit credit counselor or your lender if you need help deciding.
Frequently asked questions
What if I keep paying the cards instead of getting a loan?
If you pay the cards off over 5 years, you'll pay $10,891 in interest. That's $5,871 more than the loan. But if you only pay the loan's $333.67 monthly payment on the cards, it takes 116 months and costs $23,647 in interest. So the loan saves you money if you stick to the 5-year payoff.
Does the saving include fees?
The $5,871 saving assumes no origination fee. If your lender charges a fee, subtract it from the saving. Always ask about fees before signing, because any fee reduces your net saving.
Will consolidating hurt my credit score?
A new loan can cause a small drop in your score at first, but it may recover as you make on-time payments. Closing credit cards can also hurt your score by reducing available credit. The effect varies, so check with your lender or a credit counselor.
Can I pay off the loan early?
Yes, but check if your lender charges a prepayment penalty. If there's no penalty, paying early saves you interest. For example, paying extra each month shortens the term and reduces total interest below $5,020. Confirm the terms with your lender.