Debt consolidation loans can help you save money on fees and interest by rolling multiple loans or credit card balances into one repayment. This could also help you budget and pay off your debt faster.
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A debt consolidation loan is generally just a personal loan. But instead of taking out money to cover a holiday, car or other purchase, you're using the money to pay off outstanding debts.
The goal with debt consolidation is to combine multiple debts, each with different interest rates and fees, into a single personal loan. Done correctly, you should save money by having a single, more manageable repayment. Not only does this mean more money in your pocket, but also makes budgeting much easier.
You need to make sure the new loan works out to be more cost-effective than keeping your existing debts separate.
What debts can I consolidate with a personal loan?
Take stock of your existing debts. Work out how much you're paying each month in fees and repayments. Count up your total remaining debt amounts so you can work out how much to borrow.
Compare personal loans and find a suitable loan. Look for a new loan with a lower interest rate and minimal fees.
Crunch your costs. Before applying for a new loan, use a loan calculator and make sure the new repayments will be lower than what you're currently paying.
Apply for the new personal loan. During the application make sure you select 'debt consolidation' as the purpose of the loan. This means the lender's assessment team knows that you will be paying off outstanding debts with the loan (these debts will show up in your credit report).
Once approved, pay off your outstanding debts immediately. Make repayments on your new loan until it's paid off.
Our expert says: If you're overwhelmed by your debt, you're not alone
"According to Finder's Consumer Sentiment Tracker, the average Australian has $24,199 in personal debt. This includes car loan, personal loan, buy now pay later and credit card debt. Debt consolidation can make these debts easier to manage. Just make sure your consolidation loan works out cheaper in terms of fees and interest - monthly and over the life of the loan. "
Example: consolidating 3 debts into one personal loan
You have 3 debts you wish to consolidate. For the sake of simplicity we're assuming each of these debts has a 3-year term.
Debt type
Remaining debt
Interest rate
Monthly fees
Monthly repayment (inc. fees)
Credit card
$3,500
20%
$10
$141
Car loan
$9,000
7%
$12
$290
Personal loan
$4,000
12%
$10
$143
Total
$16,500
$574
Over 3 years you would end up paying:
$16,500 in remaining debt
$3,764 in interest + fees
For a total of: $20,264
Now, if you took out a single $16,500 personal loan over 3 years with a $10 monthly fee and an interest rate of 10% you'd have repayments of $543 a month. This means you would end up paying:
$16,500 in remaining debt
$3,027 in interest + fees
For a total of: $19,527
This works out to be $30 a month cheaper and would save you $737 overall.
Pros and cons of debt consolidation
Pros
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.
Could improve your credit score While taking out another loan may temporarily hurt your credit score, by consolidating your debt and then paying off the new loan you could see your credit score improved overall.
Cons
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 for bad credit borrowers. If you have a poor credit score, you're likely to be charged a higher interest rate.
Loan exit fees. Depending on how your existing loans are structured, you could have to pay exit fees if you switch loans as part of your debt consolidation
Is a debt consolidation loan the right option for me?
Whether or not a debt consolidation loan is the best option for you will depend entirely on your personal situation, and if you are really struggling you should consider calling the free National Debt Helpline for advice on 1800 007 007.
Generally speaking though, you should consider a debt consolidation loan if:
Your credit score has improved since you took out your existing debts
You have multiple debts from different lenders and are struggling with the various repayments
The lower interest rate on your new loan is enough to cover potential early repayment or break fees from your old loans
Another thing to consider is that, since this is a new loan, your loan term will be reset. This could be a good or a bad thing depending on your goals.
If your goal is to reduce your monthly repayments, this new and longer loan term will ease the strain on your day-to-day budget.
If your goal is to pay off your debt as soon as possible, the longer loan term could end up costing you more in the long run. However, if your new loan allows free extra repayments then you can use any extra cash to pay your loan off much sooner.
Does debt consolidation hurt my credit score?
In Australia, debt consolidation loans won't necessarily harm your credit score, but as with all credit this depends on a few things.
Any loan can damage your score if you apply for too many different loans at once or miss repayments. But meeting every payment on time and fully paying off your debt can improve your score.
Multiple debts, especially high interest debts, can also affect your score. So consolidating these debts and successfully meeting the payments of your new loan can be an overall benefit to your credit score.
You should also try to take steps to improve your credit score before applying for the loan. And don't apply for multiple loans at once.
Alternatives to debt consolidation
Talk to your lenders about hardship arrangements
If you're really struggling with debts, getting a new loan might only make matters worse. Borrowers in distress should consider talking to their current lenders before they start missing repayments.
Lenders and credit providers offer hardship assistance support for customers. This includes financial counselling, temporary repayment pauses or restructuring of your debts.
Talk to a financial counsellor
If you're struggling with debt and need help you can speak to a counsellor from the National Debt Helpline for free on 1800 007 007.
Refinance your existing debts
Your current lenders and card providers may have similar products with lower rates on offer. Refinancing a personal loan debt could save you money and be a suitable alternative to consolidating your debts.
Balance transfer credit cards
If you have multiple credit card debts you could consolidate them into a single card with a balance transfer credit card. These cards offer a 0% interest period which can help you get your debts under control. This period typically lasts between 12 and 34 months.
But if you don't repay your debt during the 0% interest period you'll be charged a high interest rate.
This might seem like an attractive prospect because your home loan rate will be lower than the rates on other debts. But home loans last for decades. So while it might only add a little to your repayments each month, you could be stretching your debts out for years or decades.
This will cost you a lot more in interest.
Can I get a debt consolidation loan with bad credit?
If you're struggling to manage multiple debts then you may already have a bad credit score. But borrowers with bad credit can still get debt consolidation loans.
Here are some tips:
Improve your credit score before applying. A small improvement to your credit score could make all the difference.
Get a risk-based personal loan. Many lenders offer risk-based pricing, which just means lower rates for good credit borrowers and higher rates for borrowers with lower scores.
Check eligibility requirements before applying. A rejected application harms your credit score, making it even harder to get your next loan approved. Lessen your chance of rejection by checking a lender's eligibility requirements before you apply.
Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
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Frequently asked questions about debt consolidation loans
Debt consolidation loans could be easy to get if you have things such as good credit, high income, security, and a history of saving and meeting bills on time. However things like having a poor credit score, low or inconsistent income, or a large borrowing amount, then you could have a harder time getting approved.
Most lenders offer unsecured personal loans for debt consolidation. If you have multiple debts these are probably not secured (unless you have a car loan). The loan you use to consolidate the debts can be unsecured too.
A debt consolidation loan can be approved in a day, however it will depend on the size and complexity of your debts - as well as your credit history.
Specialised debt consolidation services can take a bit longer, as they will look at your finances and find a tailored solution to your situation. This could make the application process take longer, as the solution may involve things such as negotiating with your current lenders.
You can roll multiple credit card debts into one personal loan. Or alternatively, you can combine multiple cards into a single balance transfer credit card with an interest-free period.
Most Australian banks, including Commbank, Westpac, NAB and ANZ offer unsecured personal loans you can use for debt consolidation. Interest rates on these loans vary based on your credit score.
While these banks may not advertise specialised debt consolidation loans, it will be a legitimate loan use reason under "any worthwhile purchase".
If you're on JobSeeker or Youth Allowance, you might need to speak to your creditors to work out a repayment plan.
Debt consolidation means using a new loan to pay off multiple existing debts. A debt agreement is a new arrangement with an existing lender that lets you avoid bankruptcy while paying off all or part of your debts.
Richard Whitten is Finder’s Money Editor, with over seven years of experience in home loans, property and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Graduate Certificate in Communications from Deakin University. See full bio
Richard's expertise
Richard has written 608 Finder guides across topics including:
Any unsecured loans for repaying a U.K. Credit card. Australian citizen. Retired.
Finder
MayNovember 29, 2016Finder
Hi Kate,
Thanks for your question.
Since you are retired, you may want to check the list of personal loans for retirees found on our website. I suggest that you read through the page to get more information on our guide. Before you apply, it’s best to review the criteria and requirements and then contact the lender to discuss your chances of approval.
Hope this helps.
Cheers,
May
MIchaelJune 20, 2016
Hi,
I have considerable debts (Credit cards and unsecure loans)at the moment and looking at what my options are to bring these down. What is the maximum amount of debts that I can have to be considered for either loan consolidation or a debt agreement.
Finder
ElizabethJuly 12, 2016Finder
Hi Michael,
Apologies for the delayed reply.
A debt agreement is an act of bankruptcy while debt consolidation is simply a personal loan that you can apply for with a lender to consolidate your existing debts into one. You can check if you meet the eligibility criteria for a debt consolidation loan by having a look at the individual review pages above.
You are able to propose a debt agreement if you meet the following criteria:
– are insolvent (unable to pay their debts as and when they fall due)
– have not been bankrupt, had a debt agreement or given an authority under Part X of the Bankruptcy Act in the last 10 years (this will be verified by the Official Receiver)
– have unsecured debts, assets (specifically the equity in assets) and after-tax income for the next 12 months all less than the indexed amounts (unsecured debts must be less than $109,036.20 and you cannot earn more than $81,777.15 p.a.)
pay the debt agreement lodgement fee specified in fees and charges (you can check these on the Australian Financial Security Authority’s website).
Keep in mind there are several consequences of a debt agreement, and as I mentioned it is considered an act of bankruptcy.
I hope this information has helped,
Elizabeth
JohnMarch 21, 2016
We are considering a debt consolidation loan or a balance transfer. We have a number of credit cards of which two are maxed out, but have one we do not use (that we have paid out from a balance transfer) and another where we have a big credit limit that we do not need.
Should we cancel the card we don’t use and decrease the limits. That is the logical thing in my head but I read on American sites that this would worsen our credit rating. I am confused.
Finder
ElizabethMarch 22, 2016Finder
Hi John,
Thanks for your inquiry.
The US credit rating system works quite a bit differently from ours, where your credit utilization, or your ratio of debt to credit, has a large effect on your credit score. In Australia, your credit score is affected by information such as credit inquiries, defaults, shopping patterns, and your payment history. You can find out more information on your Equifax score on our guide.
Basically, you can select the debt consolidation method that will help you best get in control of your debt.
I hope this has helped.
Thanks,
Elizabeth
JohnMarch 22, 2016
Thanks for that, so it is different. So will it hurt an application if I leave the limits where they are and if I don’t cancel the card. I have a very good credit history and my wife unbelievably has an excellent one.
Finder
ElizabethMarch 23, 2016Finder
Hi John,
When lenders consider you for a new credit product they take your entire financial circumstances into account – including your available credit limits. It should be noted that lenders cannot see the debt you owe on these cards, only the available credit. So when you apply, they will take the credit limit of these four cards into account and determine your ability to manage these limits as well as another credit product based on your income, credit history, etc.
If you think you may have a better chance of being approved and do not need one of the cards then you have the option of closing the card, but this is up to you.
Hope this information has helped.
Thanks,
Elizabeth
JohnMarch 23, 2016
OK thanks. I will probably limit two of those cards
darrenOctober 15, 2015
hi i have been trying to get a Debt Consolidation,loan for 25000 also to fix my van and a holiday i have payday lenders i wont to put together but is hard to get a loan and a lot of inquiry on my credit history is there anyone that can help me in that roving door trying to get out. thank you
Finder
ElizabethOctober 16, 2015Finder
Hi Darren,
Thanks for your question.
There is a free financial counselling service you might want to get in touch with – you can give them a call on 1800 007 007. You can also have a read of our bad credit debt consolidation guide which might give you some useful information.
I hope this has helped.
Thanks,
Elizabeth
deanJune 28, 2015
my partner and myself have 2 c/cards total $10,000 and a personal loan $16000 while we are able to pay loan with ease we are struggling with c/cards we are with NAB can we consolidate these within our own bank?
Finder
ElizabethJune 29, 2015Finder
Hi Dean,
Thanks for your question.
If you are referring to balance transferring your credit card balance onto an existing NAB card, you are able to do this, however the cards you’re transferring the balance from cannot be a NAB credit card. If you are referring to taking out a personal loan or adding onto an existing loan you have, you should also be able to do this. You can click ‘Go to Site’ alongside the NAB personal loan on this page to find out more about their debt consolidation loan.
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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Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest. 
Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.
Any unsecured loans for repaying a U.K. Credit card. Australian citizen. Retired.
Hi Kate,
Thanks for your question.
Since you are retired, you may want to check the list of personal loans for retirees found on our website. I suggest that you read through the page to get more information on our guide. Before you apply, it’s best to review the criteria and requirements and then contact the lender to discuss your chances of approval.
Hope this helps.
Cheers,
May
Hi,
I have considerable debts (Credit cards and unsecure loans)at the moment and looking at what my options are to bring these down. What is the maximum amount of debts that I can have to be considered for either loan consolidation or a debt agreement.
Hi Michael,
Apologies for the delayed reply.
A debt agreement is an act of bankruptcy while debt consolidation is simply a personal loan that you can apply for with a lender to consolidate your existing debts into one. You can check if you meet the eligibility criteria for a debt consolidation loan by having a look at the individual review pages above.
You are able to propose a debt agreement if you meet the following criteria:
– are insolvent (unable to pay their debts as and when they fall due)
– have not been bankrupt, had a debt agreement or given an authority under Part X of the Bankruptcy Act in the last 10 years (this will be verified by the Official Receiver)
– have unsecured debts, assets (specifically the equity in assets) and after-tax income for the next 12 months all less than the indexed amounts (unsecured debts must be less than $109,036.20 and you cannot earn more than $81,777.15 p.a.)
pay the debt agreement lodgement fee specified in fees and charges (you can check these on the Australian Financial Security Authority’s website).
Keep in mind there are several consequences of a debt agreement, and as I mentioned it is considered an act of bankruptcy.
I hope this information has helped,
Elizabeth
We are considering a debt consolidation loan or a balance transfer. We have a number of credit cards of which two are maxed out, but have one we do not use (that we have paid out from a balance transfer) and another where we have a big credit limit that we do not need.
Should we cancel the card we don’t use and decrease the limits. That is the logical thing in my head but I read on American sites that this would worsen our credit rating. I am confused.
Hi John,
Thanks for your inquiry.
The US credit rating system works quite a bit differently from ours, where your credit utilization, or your ratio of debt to credit, has a large effect on your credit score. In Australia, your credit score is affected by information such as credit inquiries, defaults, shopping patterns, and your payment history. You can find out more information on your Equifax score on our guide.
Basically, you can select the debt consolidation method that will help you best get in control of your debt.
I hope this has helped.
Thanks,
Elizabeth
Thanks for that, so it is different. So will it hurt an application if I leave the limits where they are and if I don’t cancel the card. I have a very good credit history and my wife unbelievably has an excellent one.
Hi John,
When lenders consider you for a new credit product they take your entire financial circumstances into account – including your available credit limits. It should be noted that lenders cannot see the debt you owe on these cards, only the available credit. So when you apply, they will take the credit limit of these four cards into account and determine your ability to manage these limits as well as another credit product based on your income, credit history, etc.
If you think you may have a better chance of being approved and do not need one of the cards then you have the option of closing the card, but this is up to you.
Hope this information has helped.
Thanks,
Elizabeth
OK thanks. I will probably limit two of those cards
hi i have been trying to get a Debt Consolidation,loan for 25000 also to fix my van and a holiday i have payday lenders i wont to put together but is hard to get a loan and a lot of inquiry on my credit history is there anyone that can help me in that roving door trying to get out. thank you
Hi Darren,
Thanks for your question.
There is a free financial counselling service you might want to get in touch with – you can give them a call on 1800 007 007. You can also have a read of our bad credit debt consolidation guide which might give you some useful information.
I hope this has helped.
Thanks,
Elizabeth
my partner and myself have 2 c/cards total $10,000 and a personal loan $16000 while we are able to pay loan with ease we are struggling with c/cards we are with NAB can we consolidate these within our own bank?
Hi Dean,
Thanks for your question.
If you are referring to balance transferring your credit card balance onto an existing NAB card, you are able to do this, however the cards you’re transferring the balance from cannot be a NAB credit card. If you are referring to taking out a personal loan or adding onto an existing loan you have, you should also be able to do this. You can click ‘Go to Site’ alongside the NAB personal loan on this page to find out more about their debt consolidation loan.
I hope this has helped.
Thanks,
Elizabeth