What this calculator does
When you hold several debts at different rates, no single one of them tells you what your borrowing actually costs. The blended rate weights each rate by its balance, producing the one figure that matters for comparisons.
Balance weighting is what makes it useful and what makes it counterintuitive. A 21 per cent credit card balance of $6,000 barely moves a blended rate of 6.74 per cent when the mortgage behind it is $250,000, even though that card is by far the most expensive debt.
The formula
Each balance is multiplied by its rate, the products are added, and the total is divided by the total balance. The result is the weighted average rate across all the debts.
| Term | Meaning |
|---|---|
| Blended rate | The balance-weighted average rate across all debts. |
| Weighting | Larger balances influence the result proportionally more. |
| Total annual interest | The dollar cost, which is often more informative than the rate. |
The inputs explained
| Field | What to enter |
|---|---|
| Loan balances (comma separated) | The balance on each loan, comma separated. |
| Interest rates, same order (comma separated %) | The interest rate on each loan, in the same order as the balances. |
When to use it
Assessing a consolidation offer
A consolidation loan is only an improvement if its rate beats the blended rate.
Comparing borrowing against investing
The blended rate is the return an investment would need to beat to justify not repaying debt.
Understanding total borrowing cost
One weighted figure is easier to reason about than a list of rates.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the mix of balances shift the rate?
The same three rates with different amounts owing on each.
| Balances | Blended rate | Total annual interest |
|---|---|---|
| $274k total | 6.74% | $18,470.00 |
| $310k total | 7.58% | $23,500.00 |
| $160k total | 8.88% | $14,200.00 |
Questions
Why does a high-rate debt barely move the blended rate?
Because the weighting is by balance. A $6,000 card at 21 per cent is only about 2 per cent of a $274,000 total, so its rate contributes proportionally little even though it is the most expensive money you owe.
Does that mean the expensive debt does not matter?
No, and this is the important caveat. The blended rate is the right figure for comparing against a consolidation offer or an investment return, but for deciding what to pay off first the individual rates are what count.
Should the rates be on the same basis?
Yes. Mixing an annual rate with a monthly one, or a simple rate with a compounding one, produces a meaningless average. Convert everything to the same annual basis first.
Is a consolidation loan below the blended rate always better?
Not automatically. Fees, a longer term and any security given all change the picture. A lower rate over a much longer period can cost more in total than a higher rate repaid quickly.
For deciding which debt to attack first, see the debt payoff strategy calculator. For moving a balance to a promotional rate, see the balance transfer calculator.