Debt Consolidation Break-Even Calculator

How it works

A consolidation loan often charges an upfront fee, but it also lowers your monthly payment. The break-even is simply how many months of that lower payment it takes to earn the fee back. Below it you are behind; above it every remaining month is money ahead:

With the defaults, $15,000 at 22% costs about $473 a month, and at 12% it costs $395, a saving of about $78 a month. A $500 fee divided by that saving breaks even in about 6.4 months. Since the loan runs 48 months, you clear the fee early and net roughly $3,224 after it.

As a rule, a fee is worth it only if you will keep the loan well past its break-even point.

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A worked example: a $15,000 balance at 22%

You're carrying a $15,000 balance at 22% APR, and a consolidation loan offers to move it to 12% over 48 months for a $500 upfront fee. The question is whether that fee is worth paying, and the calculator answers it: you break even in about 6.4 months.

Here is where that saving comes from. The lower rate trims your interest enough to save $77.58 every month. It takes just over six of those savings to earn back the $500 fee, and every month after that is pure gain.

Across the full 48-month term, the switch nets you $3,224 once the fee is covered.

The fee alone should never decide it. What matters is how long you stay in the loan against how fast the monthly saving repays that cost. Drop in your own balance, rates, and fee to find your own break-even point.

Reading the break-even

• Compare it to your payoff. A break-even far shorter than your loan term means the fee is easily worth it. One that lands near the end of the term is a warning sign.
• Watch for early payoff. If you might clear the balance before the break-even month, you may not recover the fee at all. Faster payoff is good, but factor the fee in.
• Add every cost. Include origination, transfer, and any annual fees, not just the headline rate. A low rate with heavy fees can break even later than it looks.

What moves the break-even

The break-even is just the fee divided by your monthly saving, so anything that changes either figure moves the point where the switch starts paying off. Knowing the levers lets you judge an offer quickly, before you commit to it.

• A bigger rate gap brings it forward. The wider the drop from your old rate to the new one, the larger the monthly saving, and the faster the fee is repaid.
• A bigger fee pushes it back. Break-even moves in direct proportion to the fee: double the fee and you double the months it takes to recover, for the same monthly saving.
• Balance size scales both. A larger balance produces a larger monthly saving from the same rate drop, which can offset a larger fee and still break even early.

The number to compare it against is your payoff term. A fee that pays for itself in a handful of months on a multi-year loan is an easy yes, because almost the whole saving is still ahead of you. One that only breaks even near the end of the term is barely worth it, and if you might clear the balance before then, you could never recover the fee at all.

Break-even versus lifetime saving

This tool gives you two numbers that answer two different questions, and it pays to read them together. The break-even tells you when you stop losing on the fee; the net saving after the fee tells you how big the prize is once you do. A short break-even is reassuring, but on its own it does not tell you whether the switch is worth the hassle.

• Break-even is the timing. It is the month you get back to even, the point after which every lower payment is genuine gain.
• Net saving is the size. It is what you actually keep over the whole term once the fee is repaid, and it is the figure worth weighing against the effort of switching.
• Read them as a pair. A fast break-even with a healthy net saving is a clear win. A fast break-even but a tiny net saving may not justify the paperwork and the new account.

Use the break-even to confirm the fee is safe to pay, then let the net saving decide whether the move is worth making at all. A switch only makes sense when you will comfortably hold the loan past break-even and the leftover saving is large enough to be worth the bother of setting it all up. As a rough rule, look for a break-even that lands within the first quarter of your payoff term, alongside a net saving large enough to notice in your budget.

Clear both bars and consolidating is usually an easy call; miss either one and it is worth pausing to check the switch is really doing you any good. The fee is only ever worth paying for a saving you will be around to collect.