Debt Consolidation Loans

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A debt consolidation loan is a way of unifying your debts, and simplifying your repayments while reducing your interest costs. Before applying with a lender, you need to have a close look at your new loan to make sure consolidating your debts will save you time and money.

What is a debt consolidation loan?

A debt consolidation loan can be used to pay off other debt, like credit cards, other personal loans and store cards, and roll it into one easy-to-manage loan. This simplifies your debt, making it easier to repay with:

  • One interest rate 
  • One regular repayment 
  • One set of fees 
  • One loan term 

It’s ideal to secure a debt consolidation loan with lower interest rates and fees than your other debts, so that consolidating your debts saves you money as well as time. 

If you are approved for a debt consolidation loan, you will receive cash in your account which will be used to repay your existing debts. In some cases, your new lender will contact your old lenders to settle the debts on your behalf.

Who uses debt consolidation loans

Who uses debt consolidation loans?

A debt consolidation loan could save you time and money, but they’re not right for everyone. Here are a few signs that you’d benefit from consolidating your debt:

  • You have several debts and struggle with repayments

If you’ve got multiple debts and find them difficult to manage, a debt consolidation loan could simplify things for you, making it easier to manage your debt and make consistent repayments.

  • The pros outweigh the cons

Never rush into a debt consolidation loan — weigh up the pros and cons before you commit. You should be 100% sure that the new loan is going to save you money and make your life easier before making the change. 

  • Your existing debts have high interest rates

If you have loans, credit cards, and store cards with high interest rates, then consolidating them into a loan with a lower interest rate could save you money.

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Speak to a financial adviser before committing to a debt consolidation loan. These financial experts can assess your current situation and advise you on the most suitable course of action.

How to choose debt consolidation

How to choose a debt consolidation loan

To figure out whether a debt consolidation loan will save you money, it’s important to compare the total costs of both options — your existing loans, and your new loan. 

You can consider three key factors:

  • Interest rates — Generally, it’s only worthwhile refinancing your debts into a debt consolidation loan if the new loan has a lower interest rate. Always compare the interest rates of your current debt with your new loan options to make sure you’ll save money in repayments.
  • Fees — Credit cards and some personal loans can have high fees. Find out what fees you’re paying on your other debts, and compare them to the fees of any debt consolidation loan you’re considering. Pay particular attention to late repayment fees, establishment or application fees, and early repayment or break fees.
  • Simplicity — Consolidating your debt should make your life easier, not more difficult. Make sure that the new loan you’re switching to is easy to understand and simple to manage. That way you’ll be less likely to miss repayments.

It’s a good idea to work out the total cost of both keeping your current debts and refinancing with a debt consolidation loan — that way you’ll know for sure whether the change will save you money. You can use the personal loan calculator to estimate your repayments.

Debt Consolidation Loan Existing Debt Example

Credit Card 1Credit Card 2Car Loan
Interest Rate13%14%9.8%
Loan Term3 years3 years4 years
Upfront Fees$0$0$0
Ongoing Fees$10$15$25
Monthly Repayments$212$152$278
Repayment Date15th1st20th
Total Loan Cost$7,638$5,462$13,328

In the example above, each separate loan comes with its own set of fees, which can add up. Each loan also has different repayment and settlement dates, which may be hard to keep track of, and may make it easier to miss repayments.

Debt consolidation

Debt Consolidation Loan Example

New LoanExisting Debt
Rate7.5%9.5 - 14%
Term3 years4 years
Upfront Fees$200$0
Ongoing Fees$0$50
Monthly Repayments$634.57$640
Repayment Date1st1st, 15th, 20th
Total Loan Cost$22,844.41$26,359

In this example, rolling all three loans into one debt consolidation loan makes paying off the debt easier by:

  • Simplifying monthly repayments — one date to remember as opposed to three. 
  • Reducing monthly fees — from $50 to $0. 
  • Reducing monthly repayments — by $18. 
  • Paying the car loan off sooner — that’s one extra year of being debt-free. 
  • Reducing total loan cost — by $3,514.59.

In some cases, depending on the details of your loans, consolidating debt may actually cost you more in the long run. That’s why it’s so important to look closely at the numbers before committing to a decision.

How to apply for a debt consolidation loan

The majority of lenders offer loans that are suitable for debt consolidation, and many offer products specifically for consolidating debt. To apply, you’ll need to gather all necessary documentation, including:

  • Income and employment verification (employment contract, payslips, tax returns). 
  • Valid ID such as a passport or Australian driver licence or passport. 
  • Proof of address. 
  • Proof of ownership and value if you’re using an asset as security. 
  • Bank statements for up to three months as required. 
  • Proof of any other income you have. 
  • Proof of assets and liabilities.  

Once you’ve got your documents ready, you can apply with most lenders online, while some may require you to visit a branch. Usually, the lender will release the funds to you once you're approved, and you’ll have to pay off each of your existing debts yourself.

Secured vs unsecured

Secured vs unsecured debt consolidation loan

Generally, you’ll have two choices when it comes to debt consolidation loans — secured or unsecured:

  • A secured debt consolidation loan requires you to use an asset like a vehicle or property as security for the loan. Secured loans generally have lower interest rates but beware — if you fall behind on your repayments your lender may be able to repossess and sell any assets you’ve used as security. 
  • Unsecured debt consolidation loans do not require security. These loans usually have higher interest rates, but the lender won’t be able to repossess your assets right away if you can’t make repayments. Keep in mind, if you fall behind on repayments, the lender may still be able to take you to court to recoup their losses. 

Debt consolidation loan comparison

Collateral RequiredYesNo
RatesUsually lower than unsecured loans Usually higher than secured loans
SuitabilityYou are certain you can make repayments and want a lower interest rate. You don’t have any assets to use as security and/or you don’t want to use your assets as security.

Alternatives to debt consolidation loans

Alternatives to debt consolidation loans

A debt consolidation loan may not be the only option available to simplify and repay your debt. You may want to consider two popular alternatives:

  • Home loan consolidation
  • Balance transfer consolidation

Consolidating your debt into your home loan

Home loan interest rates are usually much lower than other types of household debt, such as personal loans, credit cards and car loans. This is often the primary reason behind choosing to consolidate other higher interest loans into an existing home loan. 

Consolidating your debt into your home loan usually means lower monthly repayments, but in some cases doing so may cost you more in interest. Home loans tend to have long terms of up to 30 years, while most other household loan products have terms under 10 years. As a general rule, the longer the loan term, the higher the total interest cost of the loan.

Debt Consolidation into Home Loan example

Existing LoanHome Loan Consolidation
Loan Term305
Interest Rate4%8%
Monthly Repayments$48$203
Total Interest$5,178$2,166
Total Cost$15,178$12,166

Debt consolidation onto balance transfer

If you have an existing credit card debt with a high interest rate, a credit card balance transfer could make it easier to manage. Lenders regularly offer deals when you transfer an existing card balance, which may include an interest-free period, or reduced-interest period on that balance. 

These discounted periods are usually from six months to two years. If you make any additional purchases on your new card, it will generally attract the normal interest rate (purchase rate) which could be higher than your old card/s. 

Key features

Debt consolidation loan key features

Paying your debt off faster and saving money may be easier if you secure a debt consolidation loan with certain useful features. These might include:

  • No-fee extra repayments

The faster you pay off your loan, the less you’ll pay in both interest and fees. To save yourself money and make it easy to repay your loan faster, you may wish to consider looking for a loan that allows extra repayments and early loan repayment without charging fees. Many variable rate loans will allow this.

  • Flexible repayment frequency

Many debt consolidation loans allow you to choose your repayment frequency, either weekly, fortnightly or monthly. Some even allow you to choose the day of the week your repayment falls on.

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It may be a good idea to set up your loan repayments so that they fall directly after your payday — that way you’ll always have money in the bank to pay them.

  • Redraw facility

A redraw facility allows you to withdraw any repayments above the minimum amount as needed. If used correctly, a redraw facility can be a great way to reduce your total interest repayments by making extra repayments whenever you can. But be careful — if you regularly withdraw all your extra repayments, it could end up costing you more than you save.

Top 4 tips for debt consolidation

Top 4 debt consolidation loan tips

Debt can be expensive, especially high-interest rate credit cards and store cards, so it’s usually best to pay it off as quickly as you can without causing yourself financial stress. Your debt consolidation loan can be a great tool to help you do this if you:

  • Set a budget — Create a realistic budget to manage your repayments and keep a close eye on your spending to make sure you can stick to it. 
  • Make extra repayments — Making extra repayments is a great way to pay your loan off faster and reduce the total amount of interest you pay, provided it doesn’t cause you financial stress. 
  • Choose the right loan and shop around — Don’t apply for the first loan you find or automatically go to your everyday bank. Shop around to find lower interest rates, fees and a better deal. 
  • Avoid getting back into debt — Once you’ve successfully settled all your debts, the last thing you should do is take on more debt. This may be a good time to close those overdrafts and cut up your credit cards.  


Debt consolidation loans can be a great way to take control of separate debts and save money through making them easier to repay. When applying, make sure you choose a loan with features that suits your circumstances and makes paying your debt easier.

However, these loans aren’t for everyone — you should compare fees, interest rates and loan features to make sure that securing a debt consolidation loan will save you money, not cost you more.

Debt consolidation loans FAQ

Can I get a debt consolidation personal loan if I have bad credit?

You may be able to get a debt consolidation loan if you have bad credit, but your lender’s credit policies will apply. Generally, non-bank and specialist lenders have relaxed credit policies, so your chances may be better if you apply with them.

Do debt consolidation personal loans have higher interest rates than normal personal loans?

Not usually. Provided you meet the lender’s credit criteria, your debt consolidation loan should have a similar interest rate to comparable personal loan products.

Are unsecured debt consolidation personal loans available?

Yes, most lenders offer unsecured debt consolidation loans. These may have higher interest rates than secured loans but won’t require you to use your assets as security.

Will a debt consolidation loan hurt my credit score?

If you manage your debt consolidation loan well, it shouldn’t hurt your credit score. In fact, it could help improve it — make repayments on time every time, reduce your total debt, and avoid submitting multiple applications.

Will consolidating my debt into my home loan save me money?

Every case is unique and the answer to this question will depend on the circumstances of your home loan and debts. However, because home loans generally have longer terms than other forms of household debt, consolidating other debts into your mortgage could end up costing you more in the long run.