Does consolidation remove the debt?

Watch the briefing

Watch the full video on YouTube

Full briefing transcript

Three old balances become one loan. The payment list is shorter, but the debt has not vanished. Our fictional household owes one thousand, two thousand, and three thousand dollars: six thousand altogether. An invented consolidation loan pays those balances and creates a new obligation. Add a financed one-hundred-eighty-dollar fee, and the new starting principal is six thousand one hundred eighty. Consolidation changes who is owed and under what terms; it is not debt forgiveness.

Pay attention to where the fee goes. We invent a three-percent origination fee on the six-thousand-dollar creditor payment: one hundred eighty. It is financed on top, so creditors still receive six thousand and the borrower owes six thousand one hundred eighty. If an actual lender instead deducts a fee from the loan proceeds, the money available to pay creditors could be smaller. That would be a different calculation. Confirm the disbursement and the actual payoff amounts rather than assuming every arrangement works like ours.

The fictional new loan is unsecured, lasts thirty-six months, and has a fixed twelve-percent annual contract interest rate. That is not a separately calculated all-in APR including its fee. In our monthly model, the first interest charge is sixty-one dollars eighty. A two-hundred-five-dollar-twenty-six-cent payment leaves six thousand thirty-six dollars fifty-four. The new principal, fee treatment, rate, term and collateral status all belong in the comparison; one smaller-looking payment does not answer all of those questions.

The complete cent-rounded schedule has thirty-five regular payments of two hundred five dollars twenty-six and a final payment of two hundred five dollars forty-four. Total payments are seventy-three hundred eighty-nine dollars fifty-four. That includes twelve hundred nine dollars fifty-four of interest on the fee-inclusive principal. Relative to the original six thousand, interest plus the financed fee adds thirteen hundred eighty-nine dollars fifty-four. These totals do not establish savings against the old debts, whose future costs we have not modeled.

The structure can change again if borrowing continues. Suppose an old card remains available and the household makes a new two-hundred-dollar purchase immediately after the consolidation. Before further interest, there is a six-thousand-one-hundred-eighty-dollar loan plus a new two-hundred-dollar card balance: six thousand three hundred eighty. The paid old balances are not counted again, but the new charge is real in this fiction. Check actual account status and a feasible spending plan rather than treating the shorter payment list as protection against new borrowing.

Before considering consolidation, compare principal, disbursement, every fee, interest and APR disclosures, payment timing, term, and any collateral. Confirm old creditors actually receive the required payoff amounts, and do not infer savings without an equal-assumption comparison. Consolidation changes the structure; compare full costs and collateral. This is general education, not individualized financial advice. The next briefing shows why pledging a vehicle changes a refinancing decision beyond the interest rate alone.

Calculation evidence

Fictional assumptions: $1,000 + $2,000 + $3,000 = $6,000 of assumed creditor payoff amounts; a 3% ($180) origination fee is financed on top rather than withheld; new principal $6,180; unsecured 36-month loan; fixed 12% annual contract interest modeled as 1% monthly interest before each end-month payment; cents rounded half-up monthly; no new borrowing, missed payments, rate changes, grace periods, prepayment penalties, or old-debt future-cost comparison. The 12% figure is contract interest, not a separately calculated all-in APR.

Thirty-five regular payments of $205.26 and an adjusted final payment of $205.44 produce total modeled payments of $7,389.54. Modeled interest on the fee-inclusive principal is $1,209.54. Interest plus the financed fee is $1,389.54 relative to the original $6,000 principal. Old-debt future cost and savings are not modeled.

{
  "file": "INDEPENDENT_ARITHMETIC_EVIDENCE-r1.json",
  "method": "Original Node BigInt rational-cent monthly recurrence and formula-derived regular payment compared with independent Python Decimal dollars, payment formula and half-up rounding; every schedule row verified."
}