You may still be able to consolidate your debt if you have bad credit – but it might cost more.
What is debt consolidation?
Debt consolidation is where you move multiple debts into one single debt.
It involves opening another credit account to pay off your existing debt. It means that instead of multiple repayments, you just have the one new account to repay. One account means one repayment date to remember, and ideally fewer fees and interest. If done right, it can also help you pay off the loan faster.
This is one of the most common ways people choose to consolidate or refinance their existing personal loan debt.
Take out a new personal loan, one with lower interest and fees than your current loan. By paying off the higher interest debt, you can bring down your total repayments and save money.
For credit card debt. This may be a good option if you don't mind paying interest or you have more than a few thousand dollars' worth of debt and you're unlikely to move the full amount to a new credit card.
Apply for a lump sum to cover your credit card debt and use that money to pay off your card's balance. In exchange, you receive a regular payment structure and longer payment terms.
For personal loan and credit card debt. You can apply to consolidate both personal loan and credit card debt at the same time with a new personal loan. It is likely you have a higher total amount of debt, so this option may work best. But don't forget to factor in any early repayment or exit fees, as this can add up across multiple accounts.
For credit card debt. This is the most common way to consolidate credit card debt. You basically have to apply for a new card and move what you already owe onto it. You can take advantage of low or 0% interest offers to pay off your debt.
For personal loan debt. Not as common, but you can find a handful of credit card providers (Citi, Virgin Money, Qantas Money and Coles) which allow you to balance transfer personal loan debt.
You can still take advantage of promotional 0% p.a. Interest rates for set periods, but once that has finished the rate will revert back to the standard rate (usually above 20% p.a.).
It's also important to note that most credit cards only allow you to transfer about 80% of your approved credit limit. This means that even if you're approved for a $10,000 credit limit, you may only be able to transfer $8,000.
For personal loan and credit card debt. You can apply to consolidate both personal loan and credit card debt at the same time on cards from the providers listed above. Make sure the balance transfer limit is high enough for this to work.
If you have a mortgage, you have the option of taking out a home equity loan to consolidate and pay off your other debts. This option should only be used if you can be disciplined with your repayments and can build back your equity relatively quickly.
It will function as a line of credit, where you'll pay for what you borrow, not the entire credit limit given to you. This option can seem cheaper as home loans offer lower rates. But it is risky, difficult to manage and has no end-date. This can offset any savings earned with higher interest in the long run. Make sure you do the calculations to see if this option is economical. Interest, upfront fees and ongoing fees may be applicable.
What are the benefits of debt consolidation and what should I be aware of?
The benefits:
Save money. By rolling all your debts into one account, you'll be paying one fee and one interest rate. This will likely reduce how much you're paying for fees and interest.
Simplify your debts. You will have one monthly repayment to make, one lender to deal with, one set of fees to track and one rate of interest to remember.
Pay off your debts. Instead of multiple credit accounts, you maintain a single account. You get to pay off your debts, avoid defaulting and, in the worst case, bankruptcy.
Be aware of:
Confusing jargon. Watch out for certain "debt consolidation solutions" that are actually a Part 9 Debt Agreement. This is basically a form of bankruptcy and will have long term repercussions on your credit score.
High rates and fees for bad credit borrowers. If you have a bad credit score, you're likely to be charged higher rates and fees.
Paying more each month. Before you apply, calculate how much your new repayments will be to compare with what you're paying now. You may end up with higher repayments, like if you're consolidating credit card debt and have only been meeting the minimum repayments. Higher repayments may be ok if you can afford it and it means you pay off the debt faster.
Must read: Say you have $20,000 worth of personal loan debt you wish to consolidate.
You're currently paying 19.99% p.a. in interest, with a loan term of 5 years. Your monthly payments will be $540 plus $10 monthly fees. At the end of the 5 years, you would have paid over $12,300 in fees and interest alone.
Let's say you've found a debt consolidation loan for the $20,000 debt you owe.
The new loan charges 11.99% in interest over 5 years, and doesn't charge a monthly fee. This means your monthly payments work out to $455. You would have paid $6,687 in interest.
By consolidating your debt and choosing a product with a lower rate and fees, you could save $5,699 in total. How much you can save will depend on your risk profile and eligibility, so be sure to compare your options and read the fine print.
5 things to consider before consolidating your debt
1. What you owe.
Make a list of all your debts and write down how much you owe. You can do this by signing into your online accounts or checking your current credit products on your credit report. You can check your credit report for free here.
2. How much you're paying in interest and fees.
The rationale of debt consolidation is to reduce what you're paying in interest and fees. Check what you're currently paying to ensure the new debt consolidation account is actually less.
3. Your eligibility.
Debt consolidation has its benefits, but there's no guarantee you'll be eligible. There is also no certainty that you'll be approved for the full amount needed to cover your debts. Check the minimum eligibility criteria, your credit report and the minimum and maximum borrowing limit of the option you're considering. If in doubt, ask the provider directly.
4. Whether an exit fee or penalty apply to any existing credit accounts.
Some personal loans may charge you a penalty to repay your loan early. This could offset any savings you make with a debt consolidation loan. If a fee applies to your loan, you need to ensure you're still able to save with the new loan.
5. Your credit history.
Your credit score tells the lender what kind of borrower you are and whether you're likely to make your repayments on time. They will consider your score to assess whether you're a risky borrower. Check your credit score and make sure the information in it is accurate. It will also give you an idea of your financial position and likelihood of receiving another loan.
How can I consolidate my debt if I have bad credit?
While having bad credit can limit your options, debt consolidation is still possible. It may involve entering into a Part 9 Debt Agreement, but not necessarily. You may also end up paying higher interest rates and fees.
An unsecured personal loan with a specialist lender. Some lenders offer large, unsecured personal loans for people with bad credit. Interest rates are higher than with standard personal loans, but you may still be able to reduce what you're currently paying.
A Part 9 Debt Agreement. Debt Agreements are a form of bankruptcy. It is an option for people with large debts that they are unable to repay. The financier will negotiate with lenders on your behalf and your debts won't accrue more interest. However, this agreement will be listed on your credit file for 5 years from the date you enter into it. This can have long-term consequences for your credit score and ability to get credit in the future.
What happens if my application is rejected?
If your application is rejected, here's what you should do:
Wait 3-6 months before applying for another loan. Applying for multiple loans in a short period of time can affect your credit score. Waiting before reapplying may lower your risk of rejection
Before reapplying, look into why your application was rejected. If your credit score played a role, you can work on improving your score. Paying your bills on time and building your savings can help. Your credit report gets updated every month, so good financial habits can help improve your score.
Keep an eye on your credit report (you can access it for free) and once you're in the clear, you can consider applying again.
Consider paying off your small debts so that you won't have to apply for a large loan. It may be easier to get approved for smaller amounts.
Compare Debt Consolidation Personal Loans
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Frequently asked questions about debt consolidation
Applying with your current bank has its advantages, but you should compare the available options to ensure you're getting the best deal. If you have a few negative listings on your credit file and have a strong past relationship with your current bank, you may stand a better chance with it. This is if your account has been kept in good standing. Speak to your lender first to determine if you're eligible.
It is possible take a payday loan to consolidate debt. But seeing that these loans are expensive, they may not help you save any money. You can use a payday loan for whatever purpose you see fit, but it defeats the purpose if it costs more than your current debts. Additionally, you may get into further debt and it could make your debt problem worse.
Payday loans are generally last resort loans. They are not a long-term financial solution and can often exacerbate your financial problems. What you can do is work towards improving your credit score. Pay all your bills on time, build your savings and try to pay off all your small debts. The good news is that your credit score gets updated monthly. Anything you can do to improve your score now will help you in the long term. Once your score has improved, you can check if you're eligible to apply for other debt consolidation options.
This can help pay off your debt sooner. If you can cut back on some spending and change your budget, you may be able to put more towards your loan. If there are no fees for making extra repayments, you could put that money into paying down your debt. If you choose to enter a debt agreement, there may be budget and spending restrictions depending on your agreement.
A debt consolidation loan is where you take out a loan to pay off all your other debts. It involves maintaining a single credit account. The rationale is to help you reduce how much you're paying in interest and fees. It can also help you manage your debt. You'll be paying for a single loan, with a single monthly repayment and interest rate.
A debt agreement is a form of bankruptcy. It is a binding agreement you enter into with your creditors. With it, you agree to pay a percentage of your total debt. You will have to make repayments to your debt administrator instead of individual creditors. It doesn't release you from your debts and you'll still have to pay some of it. Additionally, if you offered any assets as security, creditors can seize and sell these assets.
Unlike a debt consolidation loan, this can have long term repercussions on your credit score. It will appear in your record for 5 years or longer, affecting your chances of getting credit in the future. It will also appear on the National Personal Insolvency Index for some time.
Debt anxiety is a common concern. The good news is that there are free financial counsellors you can contact. They can tell you whether a debt consolidation loan is right for you, or give you advice on your financial situation. You can contact them on 1800 007 007. There are free credit and debt services available in every state and they can help you decide your best course of action.
Having bad debts doesn't mean you don't have rights. There are laws that control what debt collectors can and cannot do.
Debt collectors cannot excessively harass, threaten or bully you. They are only supposed to contact you during certain hours of the day (7:30am–9:00pm on weekdays and 9:00am–9:00pm on weekends). Keep a log of the dates and times you were contacted, along with other specifics. This will come in handy if you have to file a complaint with a consumer protection agency like the Australian Competition and Consumer Commission (ACCC). Check your bill records if you receive a call. Ask for a detailed statement of what they say you owe. If the debt is a loan, ask for a copy of the paperwork. A collector must always identify themselves and state why they are contacting you. They should be prepared to provide you with account information and should offer a repayment or settlement plan. Figure out what you must spend to get by. This includes food, rent, car, utilities, etc. It is good practice to set up an appointment with a non-profit debt counsellor before making any promises or commitments to a collector. Always make sure you're dealing with a licensed credit provider or broker. Some operate illegally without licences. You can check ASIC's Professional Registers to see if they're registered.
Rebecca Pike is Finder’s senior money writer, with over 10 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise, A Current Affair, 9News, and Sky News, and contributes expert analysis to publications like Yahoo Finance and The Latch. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio
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we are currently looking into debt relief with credit counsellors australia, but we have come across a problem. The debt we are trying to get help with is secured. Is there anyway around this to get the help we need? The debt is a consolidation loan that is secured with a vehicle that is owned outright by us.
many thanks
Finder
ShirleyAugust 18, 2014Finder
Hi Desperate,
Thanks for your question.
I’d recommend speaking to the financial counselling hotline, they will be able to give you specific advice, rather than just general information.
If you would like free financial counselling you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.
All the best,
Shirley
DanielleJune 3, 2014
Hi,
We have a $23000 loan with GE that we took out to consolidate multiple debts we had a couple of years ago, at the time it was a life saver, but since then we have applied for financial hardship twice on the loan because the interest is 29% and we can’t afford those repayments. Our repayment history and communication with ge is very good.
We recently applied with our current bank to consolidate this ge loan but without even processing it , they saw that the ge loan was in financial hardship and didn’t bother going any further with it.
We are on financial hardship because the interest rates are so high, can’t the bank see we are trying to do the right thing ?
Are there any banks that will help us in this situation?
Many thanks
Finder
ShirleyJune 3, 2014Finder
Hi Danielle,
Thanks for your question.
Unfortunately because the GE Loan is in financial hardship, it would be difficult applying for credit as most banks prefer a good credit history.
ASIC offers a free financial counselling that may be able to help – if you would like free financial counselling you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.
Cheers,
Shirley
DanielleJune 3, 2014
Hi thanks for your reply.
We have never missed a payment , isn’t that considered good history ?
Finder
ShirleyJune 4, 2014Finder
Hi Danielle,
Thanks for your question.
Since your consolidation loan has been classed as ‘financial hardship’ this could have an impact on your credit history. It may be best to speak to your lender about this.
You can talk to a few people in terms of refinancing – you could try negotiating with your current lender, or shop around to see if there are lenders who could help.
Cheers,
Shirley
JennyApril 16, 2014
Due to a marriage breakdown, 3 years ago I was able to refinance mortgage and house into my name only. I have struggled since, and due to health issues, have recently had to reduce my working hours, temporarily. I have one dependent, 13 yo, living with me full time. I receive a part time wage, newstart allowance, family tax benefit, and regular fortnightly child support payments.
My current mortgage is $184000 and house was recently valued at $400000. I have credit/store cards with a total of $14700 owing.
As I am struggling very much financially atm, I wish to consolidate these loan amounts into my mortgage. But I cannot find a bank that will accept all of the above payments as assessable income.
Was wondering if anybody can suggest to me any lenders who may consider my situation.
Finder
ShirleyApril 17, 2014Finder
Hi Jenny,
Thanks for your question.
A mortgage broker may be able to help you find a lender that considers those types of payments as assessable income.
You can compare mortgage brokers and speak with them regarding your situation.
Cheers,
Shirley
RonaldMarch 3, 2014
Hi…I have a personal loan which I pay $202 a week and I have a credit card nearly maxed @ $15000 and another maxed at $2000.
Would consolidating be worth or can you offer a solution.
Finder
MarcMarch 4, 2014Finder
Hi Ronald,
thanks for the question.
While it may be difficult to say whether or not consolidation would be worth it for you as this will depend on a range of factors specific to you. One way to find out is to work out what your total repayments are at the moment and how much of this is going towards interest. Then you may use our personal loan calculator to see how a debt consolidation loan could help you, and if it would decrease your repayments and the interest you would pay.
Alternatively, you may apply for a balance transfer credit card with lower interest. Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you.
I hope this helps,
Marc
SuzaneFebruary 11, 2014
Hi! I have a loan with a family member of $320,000. I have been making weekly payments of $1000.00 a week.
Is there any solution to how I can return there money with a new payment plan for myself.
Kind regards
Finder
MarcFebruary 12, 2014Finder
Hi Suzane,
thanks for the question.
Please contact a financial advisor in regards to this matter, as they’ll be able to help give you personal advice which takes into account the circumstances you’ve mentioned.
Looking to consolidate your debt? Salt and Lime offers fee-free loans, same-day funding, and the ability to earn discounts on your interest over the life of the loan. Apply today.
Want to understand the differences between personal insolvency and bankruptcy, and what both of these terms mean for your financial future? Find out here.
If you're juggling multiple debts and struggling with your repayments each month, a debt consolidation loan from Fox Symes may be an option for consider. Find out what's involved with its debt consolidation personal loan in our guide and if its right for you.
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hi,
we are currently looking into debt relief with credit counsellors australia, but we have come across a problem. The debt we are trying to get help with is secured. Is there anyway around this to get the help we need? The debt is a consolidation loan that is secured with a vehicle that is owned outright by us.
many thanks
Hi Desperate,
Thanks for your question.
I’d recommend speaking to the financial counselling hotline, they will be able to give you specific advice, rather than just general information.
If you would like free financial counselling you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.
All the best,
Shirley
Hi,
We have a $23000 loan with GE that we took out to consolidate multiple debts we had a couple of years ago, at the time it was a life saver, but since then we have applied for financial hardship twice on the loan because the interest is 29% and we can’t afford those repayments. Our repayment history and communication with ge is very good.
We recently applied with our current bank to consolidate this ge loan but without even processing it , they saw that the ge loan was in financial hardship and didn’t bother going any further with it.
We are on financial hardship because the interest rates are so high, can’t the bank see we are trying to do the right thing ?
Are there any banks that will help us in this situation?
Many thanks
Hi Danielle,
Thanks for your question.
Unfortunately because the GE Loan is in financial hardship, it would be difficult applying for credit as most banks prefer a good credit history.
ASIC offers a free financial counselling that may be able to help – if you would like free financial counselling you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.
Cheers,
Shirley
Hi thanks for your reply.
We have never missed a payment , isn’t that considered good history ?
Hi Danielle,
Thanks for your question.
Since your consolidation loan has been classed as ‘financial hardship’ this could have an impact on your credit history. It may be best to speak to your lender about this.
You can talk to a few people in terms of refinancing – you could try negotiating with your current lender, or shop around to see if there are lenders who could help.
Cheers,
Shirley
Due to a marriage breakdown, 3 years ago I was able to refinance mortgage and house into my name only. I have struggled since, and due to health issues, have recently had to reduce my working hours, temporarily. I have one dependent, 13 yo, living with me full time. I receive a part time wage, newstart allowance, family tax benefit, and regular fortnightly child support payments.
My current mortgage is $184000 and house was recently valued at $400000. I have credit/store cards with a total of $14700 owing.
As I am struggling very much financially atm, I wish to consolidate these loan amounts into my mortgage. But I cannot find a bank that will accept all of the above payments as assessable income.
Was wondering if anybody can suggest to me any lenders who may consider my situation.
Hi Jenny,
Thanks for your question.
A mortgage broker may be able to help you find a lender that considers those types of payments as assessable income.
You can compare mortgage brokers and speak with them regarding your situation.
Cheers,
Shirley
Hi…I have a personal loan which I pay $202 a week and I have a credit card nearly maxed @ $15000 and another maxed at $2000.
Would consolidating be worth or can you offer a solution.
Hi Ronald,
thanks for the question.
While it may be difficult to say whether or not consolidation would be worth it for you as this will depend on a range of factors specific to you. One way to find out is to work out what your total repayments are at the moment and how much of this is going towards interest. Then you may use our personal loan calculator to see how a debt consolidation loan could help you, and if it would decrease your repayments and the interest you would pay.
Alternatively, you may apply for a balance transfer credit card with lower interest. Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you.
I hope this helps,
Marc
Hi! I have a loan with a family member of $320,000. I have been making weekly payments of $1000.00 a week.
Is there any solution to how I can return there money with a new payment plan for myself.
Kind regards
Hi Suzane,
thanks for the question.
Please contact a financial advisor in regards to this matter, as they’ll be able to help give you personal advice which takes into account the circumstances you’ve mentioned.
Regards,
Marc.