Blended Interest Rate Calculator (Weighted Average Across Debts)

The blended rate is the single rate that would generate the same total annual interest as all your debts combined. It is weighted by balance, not by the number of loans, and that weighting is the whole story.

A mortgage usually dominates. It is large and cheap, so it drags the blend toward its own rate and leaves small expensive balances almost invisible in the average. Here a 22% card sits 16 points above the blended figure while moving it by less than half a point.

The practical conclusion runs against the instinct the number invites: do not manage to the average. Clearing the $8,000 card saves $1,760 a year, a guaranteed 22% return on the money used. No investment offers that.

The blend is genuinely useful for one thing: comparing a consolidation offer against what you currently pay in aggregate.

The numerator is total annual interest; the denominator is total debt. Equivalently, each rate is weighted by that debt's share of the total balance.

Because the weights are balances, a debt that is 2.4% of your total moves the blend by at most 2.4% of its distance from the average, no matter how punishing its rate.

$300,000 at 5%, $20,000 at 7%, $8,000 at 22%:

• Annual interest: $15,000 + $1,400 + $1,760 = $18,160
• Total balance: $328,000
• Blended rate: $18,160 ÷ $328,000 = 5.540%
• The card is 2.4% of the balance but 9.7% of the interest

Clearing the card: annual interest falls to $16,400 and the blend to 5.130%. You spent $8,000 to save $1,760 a year, a 22% guaranteed return.

If rates were uniform (5%, 5.5%, 6%): the blend is 5.050% and genuinely describes what you pay, because there is no hidden extreme.

With a $60,000 card balance instead: the blend jumps to 7.790%. Now the high rate is a large enough share to show up, and the average becomes informative again.

• Tax deductibility. US mortgage interest may be deductible while credit card interest is not, so the after-tax blend differs from this figure and tilts even further toward paying the card first.
• Amortisation. Balances change over time, so the blend is a snapshot at today's balances rather than a forward-looking rate.
• Minimum payments and cash flow. The mathematically optimal order is not always the survivable one.
• Variable rates. Cards and HELOCs reprice; fixed mortgages do not.
• Promotional and teaser rates, and what happens when they expire.
• Fees. Annual fees, balance transfer fees and origination costs are real borrowing costs excluded here.
• Prepayment penalties, which can make paying a debt early more expensive than the rate suggests.
• Behavioural factors. The debt snowball clears small balances first for motivational reasons, which is not what this calculation optimises.

• Managing to the average. A 5.54% blended rate looks manageable and conceals a 22% balance. The average is the wrong target.
• Assuming a consolidation loan below the blend is a good deal. A 6% consolidation loan beats a 5.54% blend only if it also has no fees and no longer term. Stretching the term can raise total interest even at a lower rate.
• Forgetting the tax asymmetry. Deductible mortgage interest and non-deductible card interest are not comparable at face value.
• Weighting by number of loans. Three debts do not each carry a third of the weight. The mortgage here carries 91%.
• Ignoring variable rate risk. A card at 22% today can be higher next year; a fixed mortgage cannot.
• Using the blend to decide payoff order. Payoff order should follow the highest rate, or the smallest balance if you need the psychological win. Never the average.

• Standard weighted average mathematics. The blended rate is total interest divided by total balance and carries no jurisdictional content.
• The tax asymmetry between deductible mortgage interest and non-deductible consumer interest is noted as a factor excluded from the calculation.