DEBT CONSOLIDATION LOANS

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Debt consolidation loan summary

Debt consolidation personal 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.

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
  • Flexible repayment frequency
  • Redraw facility

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.

Key features of a debt consolidation loan:

Who is eligible for a debt consolidation loan?

  • Borrow from $2,000 to $100,000
  • Fixed or variable interest rates
  • Repayments to suit your budget
  • Terms from 1 to 7 years (most common is 3 years)
  • Australian Permanent Residents (& some visa holders)
  • Must be over the age of 18
  • Earn a minimum of $25,000 a year

Shopping around for the right loan can save you thousands of dollars in interest and fees.

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What is a debt consolidation loan?

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.

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.

Most popular types of existing personal finance to consolidate:

  1. Home renovation loans
  2. Unsecured personal finance
  3. Bad credit personal loans
  4. Self-employed personal loans
  5. Medical loans
  6. Wedding loans
  7. Education expenses loans
  8. Motorcycle loans
  9. Caravan, Motorhome, RV loans
  10. Boat loans
Three columns showing 2 existing loans vs 1 consolidated loan

There are two ways to use debt consolidation loans.

  1. Simplify outstanding debts into one easy-to-manage payment
  2. Lower your repayments on to a longer term (note, you may end up paying more interest over a longer term)

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.

Weighing up your options by comparing multiple personal loan offers from more than one lender is a simple way to ensure you’re getting the best deal for your personal circumstances. You can do that simply by using our smart-form. We’ll show you what lenders and what the best debt consolidation loan rates you’re eligible for.

Money Tip:
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 compare debt consolidation loans

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.

3 Key Factors to Consider

  1. 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.
  2. 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.
  3. 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.

When comparing debt consolidation loans from multiple lenders, use the comparison rate to ensure you are accounting for all fees and potential charges.

The comparison rate expresses the true cost of a personal loan (Interest plus fees) as a simple percentage.

Variable fees are not included in the comparison rate - such as late-payment fees - so be sure to keep these in mind when comparing deals. The four types of fees you should be aware of when comparing lenders for a debt consolidation loan include:

  1. Upfront costs - establishment fees and application fees
  2. Ongoing fees - annual fees and monthly fees
  3. Late payment fees - charged if you miss a payment
  4. Extra repayment fees - charged if you make early repayments to reduce the amount of interest payable on the principal amount.

Choosing a debt consolidation loan without any fees or penalties for early repayments may allow you to repay your loan earlier and save on interest, either by lowering your monthly repayments or keeping your payments at the same amount while reducing the term of your loan.

If you do not find any available offers to compare, you can work with a personal finance broker to assist in finding you a suitable deal and completing your application.

Brokers operate all across Australia — whether you need a debt consolidation loan in Adelaide, Newcastle, Sydney, Canberra, Brisbane, Melbourne, or Perth, you'll be able to find one who can help you assess a range of suitable options specific to your financial circumstances.

Money Tip:
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.

How to benefit from debt consolidation

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:

  1. 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.
  2. 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.
  3. 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.

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.

Credit card debt consolidation

In a report published by RateCity, the company claims Australians could have collectively reduced national credit card debt by more than $1.5 billion last year had they been signed up to the credit cards with the lowest interest rates available.

The company also states that the current average Australian credit card rate is 17.30 per cent, 7.3% higher than the credit cards offering the lowest rate.

Want to know how much you could save by consolidating your existing credit card debt and ditching the high-interest-rate spending for good? Read on to find out.

Debt consolidation is increasingly popular with Aussies

In a study by Bankrate conducted in April 2020 of over 160,000 Australians, debt consolidation was the number one reason for a personal loan application.

Over one-third (38%) of applicants applied for a debt consolidation loan and, as non-bank lenders begin to offer fast approval alongside competitive interest rates, getting a good deal on a debt consolidation loan has never been easier.

Before you apply, you’ll need to check your existing credit card agreements to make sure there won’t be any penalties for repaying your debt in full and cancelling the card.

Credit card companies will often charge a fee just for having the card even if you don’t use it, so you’ll also want to make sure you cut up those cards as soon as you’re done!

How does consolidating credit card debt work?

Once you’ve applied for a debt consolidation loan and you’ve been granted approval, the lender may do one of two things:

  1. Deposit the cash in your account to repay your existing debts yourself
  2. Contact your previous lenders to settle the existing debt on your behalf

Make sure you understand how the debt consolidation process will work at this stage, as you’ll want to repay and cancel your existing debts as quickly as possible to save on interest charges and make the most of your money.

If you’re only consolidating credit card debt, this will usually be a pretty simple and straightforward process. Simply repay your credit card debt, cancel the card, and you’re good to go!

However, if you’re also consolidating other debt, such as a car loan or another personal loan with a higher interest rate, you’ll want to double-check those early repayment fees to make sure it works for you financially.

How to qualify and apply

The majority of lenders offer loans that are suitable for debt consolidation, and many offer products specifically for consolidating debt. 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 personal loan, you will then need to compare lenders and assess their individual approval criteria.

To apply, you’ll need to gather all necessary documentation, and if you use our smart form and find a lender you want to apply with, you will be directed to the lender’s website and need to supply all documentation as you normally would when applying for a debt consolidation loan, which may include:

  • 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. Generally, 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.

Here are the most popular questions people are asking about debt consolidation loans

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

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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.

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

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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.

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Are unsecured debt consolidation personal loans available?

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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.

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Will a debt consolidation loan hurt my credit score?

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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.

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

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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.

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Money Pty Ltd (trading as Money.com.au) provides information about credit products and is authorised to do so as a Credit Representative (Number: 526574) of JB Finance Pty Ltd (Australian Credit Licence 390645). Money.com.au does not compare every Lender in Australia. We are not a broker or credit provider and when we provide information via this website, we are not providing you with a recommendation or suggestion about a particular credit product. When you apply for a credit product via the Money.com.au website, you are not applying with us, you are applying directly with a Lender Partner. Before entering into any credit product from one of our Lender Partners, you should confirm the rates and product information with the Lender. All information on this website is general advice only and does not take into account your objectives, financial situation or needs. You should consider whether this advice is right for you and we encourage you to seek independent financial advice.