Compare personal loan options to consolidate your debts into one payment.
Debt consolidation can help reduce your interest rate and fees by combining your existing loans and debts into one. Avoid the stress of dealing with multiple rates and fees so you can focus on paying off your debt more quickly.
How does it work?
If you have multiple debts, such as a loan and credit card, you can take out a personal loan to cover the money you owe, then simply make repayments on the new loan. If the rate offered on the personal loan is lower than that of your other debts, you will save money through lower repayments.
However, you will need to be aware of any refinancing costs or early payout fees on your other debts, as these will also need to be paid as part of the process.
What debt can I consolidate?
It's possible to consolidate a variety of debts using one of these loans. Common types of debt that are consolidated include the following:
- Personal loans. This is a common type of debt that is consolidated. You can take out a debt consolidation loan to consolidate two or more separate personal loans, a personal loan and another type of credit, or even refinance a personal loan to one with a lower rate and/or fees.
- Credit cards. If you have a large outstanding balance on your credit card, you can consider taking out a personal loan to pay it off. This can be an option for when you want to consolidate your credit card as well as another debt, or if you aren't a candidate for a balance transfer.
- Store and charge cards. Balances can easily increase on store and charge cards as they do on credit cards, making them another type of debt people choose to consolidate.
- Other credit accounts. Depending on the personal loan you take out, you may also be able to consolidate other types of debt. This can include private loans or debts to utility companies (i.e. electricity, phone, Foxtel). You should check what you can consolidate with the credit provider.
Steps to consolidating your debt with a personal loan
Once you have decided to consolidate your debt, you will need to do the following:
- Calculate how much you need to borrow to cover your debts. This should include any fees or charges you will have to cover in order to pay off your existing debts early.
- Research and compare personal loan products to find one that meets your needs.
- Apply for the personal loan.
- Use the funds to pay off your other debts, along with any fees or charges.
- Continue to make repayments on your personal loan until it has been repaid.
If you want to consolidate your debt using another method, such as using a credit card, you can read our comprehensive guide to debt consolidation.
Gary is a 28-year-old labourer. He currently owes $5,000 on his credit card and still has $3,000 to pay off on the car loan he took out four years ago. He has an interest rate of 19.99% p.a. on his credit card and 9.1% p.a. on his car loan, but is struggling to juggle his repayments.
He has found a personal loan that will let him borrow $8,500 with a rate of 7.7% p.a. He decides to take out the loan and uses the funds to pay off his credit card and car loan, as well as the fees and charges for paying off his loan early.
Instead of having to manage multiple repayments at higher rates, Gary now just makes one repayment at a rate of 7.7% p.a., saving him both time and money.
But I have bad credit, can I still consolidate my debt?
Bad credit can strike at any time. Whether you lose your job or miss a few repayments due to illness, debt consolidation for bad credit borrowers is still possible. If you find that your repayments are spiralling out of control, debt consolidation could be for you. With the help of our guide, you could potentially get your finances back on track.
Need help managing your debt consolidation?
Debt consolidation loans comparison
- CUA Fixed Rate Personal Loan: With interest rates starting at 10.99% p.a. you can use this loan to consolidate a number of debts.
- ANZ Fixed Rate Personal Loan: The ANZ Fixed Rate Loan has rates from 12.45% p.a. to consolidate your debts.
- MoneyPlace P2P Loan: This peer-to-peer loan comes with rates starting at 7.65% p.a. for debt consolidation.
- Harmoney Unsecured Personal Loan: An unsecured personal loan that comes with a tailored rate based on you credit history.
What to consider when consolidating debt with a personal loan
- Affordability. You should confirm that the personal loan you use will be cheaper to pay off than your existing debts. You must also ensure that you will be able to cover the repayments on your new loan to avoid going into further debt.
- Early repayment costs. Many loans will require you to pay additional fees or charges if you repay the loan early. These will need to be paid if you wish to consolidate your debts under a new loan and should be included in your calculations to ensure debt consolidation is the right choice for you.
- Legitimacy. Always make sure to check that the lender you wish to use is ASIC-licensed and legally able to operate in Australia.
How to get the most out of debt consolidation
- Set a budget to manage repayments.
- Use finder's financial bootcamp.
- Make extra repayments to pay off your debt sooner.
- Money hacks/ways to cut down expenditure.
- Compare your options.
Benefits and drawbacks
- Simple, single repayment.
- You can reduce your overall payments and costs.
- No more phone calls from debt collectors.
- You may increase your debt if you fail to make repayments.
- You will need to pay any fees or charges for breaking your existing loans.
Other questions you may have
I'm on Centrelink, can I still apply for debt consolidation?
Centrelink can be classed as genuine income by some lenders and can be used as income to assess your serviceability for a debt consolidation loan. It's important to calculate your repayments and find out if your lender accepts your types of income. If you are on Newstart or Youth Allowance you may need to speak to your creditors and work out a repayment plan.
My current bank offers a debt consolidation loan. Should I just apply with it?
There are some definite advantages to applying with your current bank as it may be more willing to approve you because it has an existing relationship with you and can see all your incomings and outgoings. Then again, it may not be able to offer you the best deal. You may want to compare your options before you apply to see how competitive its products are. Then, talk to your bank before applying to discuss your eligibility.
I have some equity in my home. Should I refinance and consolidate my debts that way?
This may be worth considering if you have a large amount of debt to consolidate or if you believe it is the most cost-effective option. Read our guide to refinancing your home loan to consolidate debt for more information.
Can I consolidate more than one credit card?
If you have more than one credit card from different brands you might be finding it hard to manage your interest repayments. By rolling your existing debts into a new consolidation loan, you could pay less interest and lower your repayments. If you have one credit card with a $6,400 limit at 19.99% p.a., another $1,000 limit at 13.49% p.a. and an "interest-free" store card, these can all be consolidated into a new loan.
What's the difference between debt consolidation and a debt agreement?
A debt consolidation loan is just a standard personal loan product that allows you to consolidate your current debts into one. A debt agreement is something usually taken out by people with large debts and even bad credit history and is a form of bankruptcy. Make sure you find out the terms of the loan you're entering into and the effect it will have on your credit file.