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Debt consolidation calculator excel

The Debt Consolidation Calculator: Understanding Its Purpose?

"Debt consolidation occurs when a borrower merges several existing high-interest loans with low-interest loans to create a consolidated loan. Additionally, the borrower may use monthly savings towards loan repayment."

This will lower the borrower's debt and allow them to save interest. Thanks to the debt consolidation calculator, any such computations will be simple in this case. It is a tool that determines if loan consolidation is viable based on many comparison levels. The comparison will be made based on several parameters, such as monthly Payment, total interest, or payout duration.

Understanding the Debt Consolidation Calculator

The debt consolidation calculator facilitates the restructuring of debt by combining many loans into one with a reduced interest rate resulting in smaller monthly payments.

A reasonable sum for each could be obtained if the debt consolidation calculator performs accurately. This will make managing loans and their monthly repayments simpler and less complicated. It streamlines and expedites the procedure.

The borrower must input all loan details into the calculator, including real estate, cars, credit cards, etc. The combined loan amount is then adjusted to reflect the borrower's preferred interest rate and monthly payment schedule. The borrower can, therefore, use this tool to modify the terms and circumstances until they reach a payment that fits their financial objective and budget.

However, there are benefits and drawbacks to using a debt consolidation calculator. Therefore, it is essential to have a thorough understanding of the process and its implications when selecting a suitable calculator to ensure the best outcome.

It's crucial to remember that not all loans can be consolidated, so borrowers shouldn't anticipate being able to do so with each kind of loan that has been taken out. Consolidating debt, including credit card debt, affects credit score; which is another important detail about that calculator. A decline in creditworthiness is assumed due to the lower loan interest and instalment, which impacts the score. This could impact the score by several points, but it's just momentary. People with poor credit scores should, therefore, avoid it while it keeps the debt management procedure simple.

How Do You Compute?

The process involves the following steps:

Step 1: To start, figure out how much the different loans' outstanding sums are currently worth.

PV = L*[1-(1+i)^-n/r]

Step 2: Using the formula below, determine the latest instalment amount according to the current outstanding balances using a reduced interest rate.

Installment for a New Loan = [∑PV*R*(1+R)^N]/[(1+R)^N-1

Step 3: Determine how long it will take to pay off the loan.

nPVA = In[(1-PV(R)/L')^-1]/In (1+R)

Whereas,

  • The Outstanding Balance's present value is known as PV.
  • ∑PV is the total of the outstanding balances' present values.
  • L represents the current Payment.
  • L' is the updated Payment.
  • I denote the previous interest rate.
  • R is the interest rate as of right now, and n is the payment frequency.
  • N represents the number of payments left.
  • PVA stands for periodic payments.

In the financial industry, this free debt consolidation calculator technique is commonly utilized to consolidate loans to reduce loan burden. It enables the borrower to get clarity on several issues. Primarily, it helps determine affordability and assess whether the borrower can manage the additional instalment. Secondly, it provides a means of making a budget and allocating funds to loan repayment, instilling discipline throughout the process. Lastly, utilizing the online debt consolidation calculator allows the borrower to set aside money for unexpected expenses, which is essential from the financial planning perspective.

Examples

With the aid of some pertinent instances, which are provided below, let's examine the idea of the free debt consolidation loan calculator:

Example 1:

Let's say that Mr A owes $16,888 and $54,678 in outstanding debts, respectively. Mr. A chose to combine them into a four-year loan with a 9.25% interest rate because the interest rate is quite high.

Using the provided information, you must figure out the new instalment amount for the combined debt.

Solution

  • Our outstanding debt totals $71,566 because we currently have two loans totalling $54,678 and $16,888.
    Debt consolidation calculator excel
  • That would mean an interest rate of 9.25%/12, or 0.77%.
    Debt consolidation calculator excel
  • Initial Loan Installment = [∑PV x R x (1+R)^N]/[(1+R)^N-1
    Debt consolidation calculator excel

= [$71,566 x 0.77% x (1+0.77%)^48] / [(1+0.77%)^48-1]

=$1,730.26

Therefore, Mr. A must pay $1,559.37 monthly for four years to consolidate the loan.

Example 2:

The following details relate to the two loans that Sunita Williams took out:

The Bank has offered Sunita the opportunity to combine all her debt into one with the longest remaining term. She is making payments of $619.88 and $913.07 each month. 10% interest is the rate that is being given.

The new consolidated loan instalment amount and the maximum repayment period must be determined using the information provided.

Solution:

The present value of the current outstanding debt balance must be determined. This can be done using the formula below.

Loans for students

1% is the applicable monthly interest rate.


Debt consolidation calculator excel
  • Seven years, or 84 months, remain in this span.

PV = L*[1-(1+i)^-n/r]


Debt consolidation calculator excel

$699.74*[1-(1+1%)-84/1%] is the current value

=$39,639.19

Auto Loan

The interest rate that applies every month is 10/12, or 0.83%.

Debt consolidation calculator excel
  • That leaves five years, or sixty months, left.

PV = L*[1-(1+i)^-n/r]

Debt consolidation calculator excel

$879.16 x [1 - (1+0.83%)-60 / 0.83%] is the present value of the auto loan.

= $41,377.99

Debt consolidation calculator excel

The total amount owed on the loan is

=$39,639.19 + $41,377.99

=$81,017.18

  • With a new interest rate of (8%/12) 0.67% and an outstanding loan tenure of 84 months, we will use the following calculation to determine the new instalment amount.

New Loan Installment: [∑PV x R x (1+R)^N]/[(1+R)^N-1

Debt consolidation calculator excel

= [81,017 x 0.67% x (1+0.67%)^84] / [(1+0.67%)^84-1].

= $1,578.9

Duration of a consolidated debt repayment

  • The time it will take to pay off the combined debt will now be calculated:

nPVA = In[(1-PV(i)/L')-1]^-1]/In(i+1)

Debt consolidation calculator excel
  • According to [{(1-81,017*(0.67%)/1,578.9}-1],/In (1+0.67%)
  • 63 months, respectively
  • In light of this, a fresh instalment might pay off the loan in five to six months.

Because of this, the examples above provide a clear and thorough explanation of the idea and the processes and knowledge needed to utilise the calculator.

Benefits

Here are a few noteworthy benefits of using the online debt consolidation loan calculator.

  • Keeping up with a single loan is simpler than managing a large portfolio of loans. If not, it becomes extremely difficult to remember to make every Payment, which could result in missing payments, fines, and legal repercussions.
  • There is less likelihood that the borrower won't be able to repay the loan because using a calculator to consolidate loans results in lower interest and instalment payments. They are saved by default.
  • The principal advantage would be that the loan can be repaid early, improving the borrower's credit rating.
  • Following the completion of this debt consolidation, collection agencies will no longer pursue this debt.
  • Tax refunds may be accessible if the unsecured debt is converted into secured consolidated debt.
  • Lower interest rates can be obtained by debt consolidation, which can save interest costs and shorten loan terms.

Drawbacks

The following are a few drawbacks of the idea.

  • Combining several loans into a single consolidation loan could slightly negatively influence credit score because it would indicate a failure to make loan payments.
  • The debt is aggregated and provided at a higher interest rate over each loan due to a lack of liquidity. Thus, when returned, the loan with lower interest would switch to one with a higher interest rate.

Notable and significant points

When consolidating debt, keep the following in mind.

  • There should be numerous outstanding debts for the borrower.
  • Because of his excellent credit score, the Bank would have allowed the borrower to combine his loans at a reduced interest rate, or the borrower would have requested to do so if he missed payments on several loans.
  • Certain conditions may apply, such as a minimum remaining tenure of three years or more or a minimum outstanding loan amount of $100,000 in certain situations for consolidation.

The lesson here is that, regardless of whether the loan would be secured/unsecured, the borrower has two options: either consolidate the debt and pay it off sooner by paying less interest or use liquidity constraints to force the borrower to pay off the debt sooner. These combined loans are transferred rather than erased.







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