Weighted Cost of Debt Calculator
Blend up to three debts into one weighted-average interest rate, see your annual interest bill, and apply a tax shield for deductible debt.
How it works
Weighted rate = Σ(balance × rate) ÷ Σ(balance) · After-tax cost = weighted rate × (1 − tax rate)
A weighted-average rate blends several debts by size, so a large low-rate mortgage and a small high-rate card combine into one honest headline number — far more useful than a simple average, which would over-weight the tiny balance. The annual interest cost is what that blended rate actually pulls out of your pocket each year. For businesses (or deductible debt like some mortgages), interest lowers taxable income, so the after-tax cost — rate × (1 − tax rate) — is the true economic cost; leave the tax rate at zero for ordinary personal debt.
Worked example
A $15,000 loan at 6.5%, $8,000 card at 19.99% and $25,000 loan at 4.5% total $48,000. Weighted numerator is 97,500 + 159,920 + 112,500 = 369,920, divided by 48,000 = 7.71%. That is about $3,700 of interest a year, roughly $308 a month.
Frequently asked questions
Why use a weighted average instead of a simple average?
A simple average treats a $500 card and a $50,000 loan as equally important. Weighting by balance reflects where your money actually is, giving the blended rate that matches your real interest bill.
What is the after-tax cost of debt?
When interest is tax-deductible, each dollar of interest reduces taxable income, so the government effectively subsidises part of it. The after-tax cost multiplies the rate by (1 − tax rate). For most personal debt, interest is not deductible, so leave the tax rate at 0%.
Which debt should I pay down first?
Mathematically, attack the highest-rate debt first (the avalanche method) — here that is the 19.99% card — because it costs the most per dollar. The blended rate tells you your overall burden, not which balance to target.
Related calculators
Educational estimate, not financial advice.