This average interest rate calculator is a cool calculator to determine if loan consolidation is good for you.
As a free online calculator, it figures the average interest rate you are paying for all your loans. You can input credit cards, student loans, etc. and arrive at the average.
How will this help you? With this information you can decide if it would be a good idea to combine the balances of some loans or credit cards. This can be especially helpful if you can move your higher interest rate loan balances or credit cards to lower ones or another financial instrument.
Remember if you plan to do this to lower your debt to income ratio (DTI), do not max out a credit card to accomplish this. That will work against you if you're trying to buy that first house.
But if you are planning to be a first time home buyer in the future and want to improve your DTI, this online interest rate calculator will help you decide if combining your debt will be worth it. Especially if you can lower the amount of interest you are paying each month so you can pay off your debt faster.
So let's get started. To use this average interest rate calculator you want to begin with understanding each of the column headings.
Notice you have 4 of them:
In the first column enter a short description for the debt. For example "Capital One Credit Cared," in the next column enter the current balance from your monthly statement. Then in the third column put your annual interest rate. This annual interest rate will also be found on your monthly statement.
Do not worry about the last column on the right "Interest Rate This Month" since the calculator will figure this for you later.
Proceed to list all your debts in this fashion. You can enter up to 15 different debts. Once you have them all entered, you can click on the orange "Calculate Results" button and this will finish all the rest of the fields for you.
This will give you the totals just under the orange buttons along with an average interest rate which you are currently paying.
Now, write this information down. You need these totals so you can compare the figures.
If you think you have found a way to save money by combining debts, clear the form and start the exercise all over again. Enter the balances, lower interest rates etc. If you can see a savings it may be worth doing some debt consolidation.
With this information you know what your average rate is before and after, you can negotiate a lower rate if you choose to combine all these notes into one.
If you're planning to buy a home soon, I don't recommend that you combine all your credit cards into one. Unless that combination will leave you with a less than 50% of the maximum allowed on the credit card limits.
Why? Less than 50% looks like a good risk to a lender. Higher than that may make you look like you are not managing your credit.
I would only use this for planning purposes. I'm not a fan of debt consolidation because often times it costs you money to do it thus increasing your principal balance. So even though you may get a lower interest rate on a new loan, when you count the cost, it may not be worth it and you would be better off quickly paying off the lower balance cards first. Then double up as you free up more money by paying down the higher balance cards next.
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