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Debt consolidation loans in Australia
Written by
Shaun McGowanAre you feeling overwhelmed by debt?
- Loans
- Credit cards
- Overdue bills
- Buy-now-pay-later
If you’re starting to lose track, debt consolidation could be the answer.
Consolidating debt benefits
Consolidating your debts should make them:
- Easier to manage; and/or
- Cheaper to repay
Of course, debt consolidation isn’t for everyone.
Below, we’ll cover off all the things to look out for and keep in mind so you can simplify your debts.
The two ways to use debt consolidation loans
The first way
Let’s say you’ve got five different debts and...
You’re making five different payments at various times of the week or month.
Add rent, bills, streaming subscriptions, direct debits and other ongoing expenses and...
It’s very easy to feel overwhelmed and lose track of where your money is going.
Debt consolidation allows to take all those repayment amounts and different dates and merge them into a single loan.
One amount. One repayment.
- So instead of paying: $45.66, $59.14, $104.94 and $130.26 on the 3rd, 9th, 15th, and 28th of the month, all charging different rates of interest and fees for missing payments...
- You could simply pay: $340 (or less!) once a month. On the day of your choosing, with a single interest rate.
The two ways to use debt consolidation loans
The second way
Use debt consolidation to extend the term of your repayments.
But keep in mind, this may not save you money.
The longer you take to pay off your loan, the more you’ll end up paying in interest.
However, it could allow you to free up cash or simply breathe easier in the short term...
Because extending your term means your repayments will be lower.
And, if you decide you are in a better place a little way down the road, you can always think about:
- Refinancing your loan to shorten your term at a better rate, or
- Making additional payments (if you can) to settle your debt sooner.
Compare your best debt consolidation rates and offers
FIND YOUR LOANJoshua's debt consolidation loan
Joshua used a debt consolidation loan to get a handle on his debts. His debts were:
- Car repair bill
- Dentist bill
- Course fees
- Credit card
He was finding it harding it hard to ensure he still had money on each of the different payment dates. Joshua chose a debt consolidation loan with:
- Weekly instalments on a day he chose, so it matched when he got paid
- Fixed interest rate of 11.35%, which was less than his other existing interest rates
- Loan term of 2 years, so his payments each week were manageable and he still had money left from his pay check
- No establishment or monthly fees, so he wasn't paying more than he had to
What to look for in debt consolidation loans
So, now that you want to consolidate your debt, you’ll want to keep three important things in mind when comparing or choosing a loan:
- Debt consolidation loan rates — The lower the better. Low interest rates mean lower total costs and lower repayments overall.
- No ongoing fees — Fees are awful, and you shouldn’t pay them. Credit cards are notorious for this; find a new loan with no fees and save money instantly.
- Simplicity — Find a loan that lets you choose your frequency of repayment and date to better manage your debts, or one with no fees if you want to repay your loan faster.
Find the lowest rate debt consolidation loan you can with no fees.
Comparing debt consolidation loans and lenders
When comparing debt consolidation loans and rates from multiple lenders, use a comparison rate to ensure you are accounting for all costs.
The comparison rate expresses the true cost of a loan (Interest plus fees) as a simple percentage.
The four types of fees you should be aware of when comparing lenders for a debt consolidation loan include:
- Upfront costs - establishment fees and application fees (often negotiable)
- Ongoing fees - annual fees and monthly fees (avoidable)
- Late payment fees - charged if you miss a payment (very avoidable!)
- Extra repayment fees - charged if you make an extra payment (ouch!)
Upfront and Ongoing fees are included in the comparison rate. However, variable fees - such as late-payment fees - are not, so be sure to keep these in mind when comparing deals.
If you can’t find any loans to compare, a personal finance broker can assist in finding you a suitable deal and completing your application.
The right debt consolidation loan can save you $1,000s
FIND YOUR LOANWhat lenders are looking for
Lenders love boring, or should we say, consistency!
They love it if you've had the same job forever and have been at the same house since you first left home.
Here's an example of how your employment history can influence your approval.
How lenders view credit history
Here is how your credit history can influence your ability to be approved.
How to benefit from debt consolidation
Debt can be expensive, financially and mentally.
Debt consolidation can be a great tool 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.
- Choose the right loan and shop around — Shop around to find lower interest rates, fees and a better deal.
- Avoid getting back into debt — This may be a good time to close those overdrafts and cut up your credit cards.
You can also speak to a financial adviser before committing to a debt consolidation loan.
These financial experts can assess your current situation and advise you on what will or won’t work in your current circumstances, and also help you find a great loan.
How does consolidating debt actually work?
Once you’ve applied for a debt consolidation loan and you’ve been granted approval, the lender may do one of two things:
- Deposit the cash in your account to repay your existing debts yourself
- Contact your previous lenders to settle the existing debt on your behalf
Either way, you’ll want to repay and cancel your existing debts as quickly as possible to save on interest charges.
If you’re only consolidating credit card debt, simply repay your credit card debt, cancel the card, and you’re good to go!
Who is eligible?
You can apply for a debt consolidation loan in Australia if you are:
- Over the age of 18; and
- An Australian citizen or permanent resident; and
- Employed or have a regular source of income over $25,000 per year
If you meet the basic eligibility for a debt consolidation loan, you will then need to compare lenders and assess their individual approval criteria.
What happens once you get approved?
Most lenders will make the consolidating of your debt super easy:
- They'll organise the consolidation of your debts
- Pay your nominated credit providers directly
- Close off your nominated old accounts to avoid further debt ad fees
Here are the most popular questions people are asking about debt consolidation loans
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.
Can you help me get a consolidation loan anywhere in Australia?
With most debt consolidation lenders, they operate throughout the country. Whilst most are located in the major capital cities like Perth, Sydney, Melbourne, Brisbane, Adelaide and Hobart, they often have local representatives across the smaller cities as well.
All the lenders we work with have Australian based teams. So rest assured, when arranging your loan you'll be working with a lender in Australia.
The right debt consolidation loan can save you $1,000s
FIND YOUR LOANWant to know more about debt consolidation loans?
About the Author
Shaun
McGowan
Shaun McGowan
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
Information about borrowing rates The rate advertised are comparison rates. See below for further information about comparison rates. Using our lender SocietyOne as an example Tier 1 borrowers will receive an interest rate between 5.95% - 10.49% p.a. (comparison rate 5.95% - 12.83% p.a.). Tier 2 borrowers will receive an interest rate between 9.99% -12.19% p.a. (comparison rate 12.05% - 15.03% p.a.). Tier 3 borrowers will receive an interest rate between 11.99% - 15.99% p.a. (comparison rate 14.37% - 18.62% p.a.). Tier 4 borrowers will receive an interest rate between 14.99% - 19.99% p.a. (comparison rate 18.41% - 21.70% p.a.). The maximum annual percentage rate (APR) interest rate is 19.99% p.a. (comparison rate 21.70% p.a.). An establishment fee applies for most borrowers. Personal loan example: for a borrower with excellent credit (Tier 1 borrower), a loan of $10,000 over a 3 year term, with an interest rate of 8.99% p.a. (comparison rate 12.32% p.a.) and a $495 establishment fee, the fortnightly repayment would be $154 and the total cost over the life of the loan (including the establishment fee) would be $12,013. SocietyOne personal loans are available for terms of 2, 3 and 5 years. Minimum loan term repayment period is 2 years, maximum loan term repayment period is 5 years.
*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $10,000 over 3 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.
