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What is credit card debt consolidation?
Credit card debt consolidation means you move the balance of one or more credit cards to a fixed-term personal loan with a lower interest rate and a set repayment schedule for clearing the debt.
The idea behind debt consolidation is to simplify your credit card debts and reduce how much you're paying in interest and fees, whether it's a personal or business credit card.
This then enables you to pay off the debt faster than if you were paying off multiple credit cards.
The other way to consolidate credit card debt is to use a balance transfer credit card.
Australians collectively are paying interest on almost $20 billion of expensive credit card debt. With interest rates over 20% on some credit cards, it's no wonder a lot of people prioritise dealing with their credit card debt. A personal loan for consolidating credit card debt is a popular option.
Advantages of debt consolidation for credit cards
Consolidating credit cards can be particularly beneficial, because:
- Credit cards can come with very high interest rates. Moving your debt to a personal loan brings the potential for a lower interest rate.
- You will have a single regular repayment to make and this amount will stay the same during the loan term (if you opt for a fixed rate personal loan).
- Instead of an open-ended credit card contract, you will have a fixed time-frame for repaying the debt, with loan terms from 1-7 years available.
- Once you consolidate the debt, it’s not as easy to accumulate new debt as it would be if you had a credit card.
- You can also consolidate other debts you have (e.g. Buy Now Pay Later) into the same single loan.
- You can usually make extra repayment to repay the debt early if you can afford to (watch out for fees that may apply on some loans).
- All of this can make it easier, cheaper, or faster to repay your credit card debts.
Credit card vs debt consolidation loan cost comparison
Total debt | |
Credit card | $15,000 |
Credit card debt consolidation loan | $15,000 |
Interest rate | |
Credit card | 18.99% p.a. |
Credit card debt consolidation loan | 12.99% p.a. |
Monthly repayment | |
Credit card | $341 |
Credit card debt consolidation loan | $341 |
Finance term | |
Credit card | 6 years, 5 months |
Credit card debt consolidation loan | 5 years |
Total interest payable | |
Credit card | $10,869 |
Credit card debt consolidation loan | $5,473 |
Interest savings | |
Credit card | N/A |
Credit card debt consolidation loan | $5,396 |
| Credit card | Credit card debt consolidation loan | |
|---|---|---|
Total debt | $15,000 | $15,000 |
Interest rate | 18.99% p.a. | 12.99% p.a. |
Monthly repayment | $341 | $341 |
Finance term | 6 years, 5 months | 5 years |
Total interest payable | $10,869 | $5,473 |
Interest savings | N/A | $5,396 |
Credit card debt consolidation loans offer more structure
One of the main benefits of a credit card refinance is that it brings structure to your debt.
Particularly if you have multiple credit cards, managing different repayments dates, balances and interest rates is not easy.
“People struggling financially usually do so where they have less planning or structure to managing their debts”, explained David Berry, former Chief Executive Officer of Way Forward, a not for-profit-organisation that helps Australians with their debt.
David Berry, former CEO of Way Forward
"Credit cards and buy now, pay later are examples of unstructured debt. Personal loans on the other hand have a fixed repayment and the balance can usually only go down. So when someone gets extra cash they find it easier to pay off a personal loan."
David Berry, former CEO of Way Forward
How to consolidate credit card debt
If you’re consolidating credit card debt into a personal loan, these are the steps that are typically involved:
1
Calculate your debt consolidation loan total by adding up your total debts.
2
Compare debt consolidation loans from different lenders.
3
Ensure you’re eligible to apply (e.g. check your credit score).
4
Make an application with the lender or use a personal loan broker if you’re not comfortable going it alone.
5
Provide supporting documents to show you can afford the repayments (e.g. payslips and bank statements).
6
If you’re approved, the lender will arrange to clear your credit card debts or transfer funds to you so you can repay the balances.
7
Cancel the credit cards.
8
Begin repaying the debt consolidation loan.
How to get the best credit card debt consolidation deal
Of course, you’ll only get the benefits if you’re careful with choosing the right credit card refinance loan.
- Make sure you only apply for the amount of money you are consolidating. Avoid taking on extra debt.
- Consider choosing the shortest loan term you can afford as this will save you money on interest.
- Find a debt consolidation loan with the lowest interest rate and fees you’re eligible for. This won't necessarily be a lender's lowest ‘advertised rate'.
- Before you cancel your credit cards, make sure you're aware of any cancellation fees and any insurance that comes with the card you may lose.
- Try to find a lender who will let you set the day you make your repayments. Then set the repayment to match when you get paid.
Credit card debt consolidation loans for bad credit
If your credit score is below average, getting approved for a credit card debt consolidation loan might feel tricky, but it’s not impossible. There are specialist lenders in Australia who work with a wide range of borrowers, including those with bad credit.
These lenders may not always advertise bad credit debt consolidation loans openly, as they often come with higher interest rates and additional fees. Still, they can be a viable option if the rate is considerably lower than the rate(s) on your credit card(s), and if the loan has flexible terms to pay it off earlier without incurring penalty fees.
What lenders consider when assessing your application:
- Your current income and ability to meet repayments
- The severity of your credit issues (e.g. late payments vs defaults)
- Your debt-to-income ratio
- Whether the loan is secured or unsecured (secured personal loans are usually easier to qualify for and may come with lower rates)
Ready to consolidate your credit card debt today?
Money.com.au can help you find the best deal in three simple steps:
- 1. Let us know who you are and what you're looking for: A little bit of information goes a long way in helping us find the right loans for you.
- 2. We securely analyse your data against each lender: This process finds the best loan offers that match your profile.
- 3. Get matched: You'll see qualified personal loan offers showing your estimated repayments.
Ready to compare credit card consolidation loans?
Get your best offers from multiple lenders. There's no obligation and checking your rates won't impact your credit score.
Get help if you need it
It’s important to remember that debt consolidation may not suit everyone. Think carefully about whether it makes sense for your situation.
If you have debt problems and need help from a finance professional, you can call the National Debt Helpline on 1800 007 007.
They will connect you with a financial counsellor who may be able to help.
