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.
A debt consolidation loan is a personal loan which you use to pay off all of your debts.
By repaying this single personal loan instead of multiple debts you could save money on interest.
Alternatives to a debt consolidation personal loan include a balance transfer credit card, refinancing or consolidating into your home loan.
What are debt consolidation loans?
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.
Average personal debt
According to Finder's Consumer Sentiment Tracker, the average Australian carries:
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.
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 $28,086 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. "
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.
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.
Look at specialist bad credit lenders. There are lenders that specialise in lending to borrowers with poor credit histories.
Why compare personal loans with Finder?
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.
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".
Some lenders may classify Centrelink as income you can use to pay off your loan. It's important to find out if your lender accepts Centrelink recipients first.
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 Senior Money Editor, with over eight years of experience in home loans, property, credit cards 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 started his career in education and textbook publishing in South Korea. He 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 Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University.
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Due to a business tax debt my wife had to use the services of a lawyer to negotiate on her behalf. She now has a payment plan and is back on track but the lawyers fees need to be paid. I am full time permanently employed in a professional capacity and am not involved in my wife’s business but would like to help her with the legal fees. The lawyer is no longer working on behalf of my wife. Will any of your providers give personal loans that could be used to clear these lawyers fees? ($10,000). I am aware that some lenders will not lend for this purpose. If not, do we have any other options to clear this debt?
They’re personal loans where you don’t need to offer an asset as security and can generally be used for any purpose.
Cheers,
Shirley
SallyDecember 4, 2014
We currently have:
– a personal loan of $44,000 with CBA at 15.90% p.a with a monthly repayment of $1,004 plus account fee of $10 each month.
– a CBA credit card with a balance of $7,000 at 19.74% p.a which we pay at least the minimum payment.
– a St George credit card with a balance of $3,300 interest free for 12 months as we did a balance transfer from CBA.
We both work full time with income of $3,000 each after tax. I’m just wondering if we decide to go with Debt Consolidation, is it a good idea? As we want to put our loan into one account and reduce the account keeping fee from the Personal Loan account and reduce the amount of interest we pay.
Look forward to hear back from you soon.
Finder
ShirleyDecember 4, 2014Finder
Hi Sally,
Thanks for your question.
Unfortunately finder.com.au can only provide general advice regarding the products we display. The nature of this enquiry comes under financial advice so you’ll need to speak to a licenced professional.
If you’d like free financial guidance you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.
You may even want to approach one of your existing lenders to discuss what debt consolidation options are available to you.
Cheers,
Shirley
richardOctober 17, 2014
Hi. I have an outstanding balance of $4000 on my CBA credit card with 20.24 % IR , and also a car loan of $9000 remaining with 10% IR and $216 monthly repayment for 5 year term. Is there any of the personal loan or balance transfer which help me to combine it all together in one monthly repayment and to save some money on interest as well? I applied for the citibank deal few days ago without including payslip and ID, and totally forgot until I got the mail that said declined. My annual income is around $37k, any suggestions, please? Thank you very much.
Finder
ShirleyOctober 17, 2014Finder
Hi Richard,
Thanks for your question.
All the personal loans that are displayed on this page is suitable for debt consolidation. However, in terms of combining it all together, it will depend on the credit limit that you’re approved for. You may find that the amount that you’re approved for isn’t what you were looking for. I’d recommend that you get in touch with a few of the lenders (without making any formal applications) just to discuss your options and eligibility.
Also, in terms of your Citibank application, you may want to get in touch with them again to explain that you forgot to include your payslip and ID, to see if they can reopen your application again. Having too inquiries appear on your credit history may not look too favourable to lenders.
All the best and please let us know if you have anymore questions.
Cheers,
Shirley
richardOctober 17, 2014
Thank you very much for your reply.
In the past 6 months i applied a few personal loan application with a few lenders, but i ended up decide not to at last minute as i thought the IRs were too high. All the applications were conditionally approved. Is that gonna make me have a bad credit history?
Finder
ShirleyOctober 20, 2014Finder
Hi Richard,
As a general rule of thumb, one application every 3 to 6 months is favorable from the lender’s point of view. Every time you apply for a loan product, it appears on your credit history as an inquiry.
You may not necessarily have a bad credit history (though it might be a good idea to check), you may want to wait for a few months before applying again.
Cheers,
Shirley
laurenOctober 14, 2014
Do any of your providers give debt consolidation loans to Centrelink recipients?
Finder
ShirleyOctober 14, 2014Finder
Hi Lauren,
Thanks for your question.
Please see what loan options are there for people on Centrelink for a list of lenders that may be able to help.
Cheers,
Shirley
AmitOctober 12, 2014
I have a personal loan with NAB with the payout balance remaining is $ 23000 at the interest rate of 14.45 % and my monthly repayment is $ 925 with loan ending in july 2017. I want to save money out of interest I will be paying for the remainder of my loan .
Can you suggest me good providers and things I need to consider before I apply for a balance transfer ? any introductory offer ?
Thank you
Finder
ShirleyOctober 13, 2014Finder
Hi Amit,
Thanks for your question.
Please note that to our knowledge, only Citibank and Virgin allow balance transfers to a credit card from a personal loan. If you’d like, you can click on the links to see the current offers available from both providers.
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.
Due to a business tax debt my wife had to use the services of a lawyer to negotiate on her behalf. She now has a payment plan and is back on track but the lawyers fees need to be paid. I am full time permanently employed in a professional capacity and am not involved in my wife’s business but would like to help her with the legal fees. The lawyer is no longer working on behalf of my wife. Will any of your providers give personal loans that could be used to clear these lawyers fees? ($10,000). I am aware that some lenders will not lend for this purpose. If not, do we have any other options to clear this debt?
Hi Andrew,
Thanks for your question.
You may want have a look at our guide on unsecured loans.
They’re personal loans where you don’t need to offer an asset as security and can generally be used for any purpose.
Cheers,
Shirley
We currently have:
– a personal loan of $44,000 with CBA at 15.90% p.a with a monthly repayment of $1,004 plus account fee of $10 each month.
– a CBA credit card with a balance of $7,000 at 19.74% p.a which we pay at least the minimum payment.
– a St George credit card with a balance of $3,300 interest free for 12 months as we did a balance transfer from CBA.
We both work full time with income of $3,000 each after tax. I’m just wondering if we decide to go with Debt Consolidation, is it a good idea? As we want to put our loan into one account and reduce the account keeping fee from the Personal Loan account and reduce the amount of interest we pay.
Look forward to hear back from you soon.
Hi Sally,
Thanks for your question.
Unfortunately finder.com.au can only provide general advice regarding the products we display. The nature of this enquiry comes under financial advice so you’ll need to speak to a licenced professional.
If you’d like free financial guidance you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.
You may even want to approach one of your existing lenders to discuss what debt consolidation options are available to you.
Cheers,
Shirley
Hi. I have an outstanding balance of $4000 on my CBA credit card with 20.24 % IR , and also a car loan of $9000 remaining with 10% IR and $216 monthly repayment for 5 year term. Is there any of the personal loan or balance transfer which help me to combine it all together in one monthly repayment and to save some money on interest as well? I applied for the citibank deal few days ago without including payslip and ID, and totally forgot until I got the mail that said declined. My annual income is around $37k, any suggestions, please? Thank you very much.
Hi Richard,
Thanks for your question.
All the personal loans that are displayed on this page is suitable for debt consolidation. However, in terms of combining it all together, it will depend on the credit limit that you’re approved for. You may find that the amount that you’re approved for isn’t what you were looking for. I’d recommend that you get in touch with a few of the lenders (without making any formal applications) just to discuss your options and eligibility.
Also, in terms of your Citibank application, you may want to get in touch with them again to explain that you forgot to include your payslip and ID, to see if they can reopen your application again. Having too inquiries appear on your credit history may not look too favourable to lenders.
All the best and please let us know if you have anymore questions.
Cheers,
Shirley
Thank you very much for your reply.
In the past 6 months i applied a few personal loan application with a few lenders, but i ended up decide not to at last minute as i thought the IRs were too high. All the applications were conditionally approved. Is that gonna make me have a bad credit history?
Hi Richard,
As a general rule of thumb, one application every 3 to 6 months is favorable from the lender’s point of view. Every time you apply for a loan product, it appears on your credit history as an inquiry.
You may not necessarily have a bad credit history (though it might be a good idea to check), you may want to wait for a few months before applying again.
Cheers,
Shirley
Do any of your providers give debt consolidation loans to Centrelink recipients?
Hi Lauren,
Thanks for your question.
Please see what loan options are there for people on Centrelink for a list of lenders that may be able to help.
Cheers,
Shirley
I have a personal loan with NAB with the payout balance remaining is $ 23000 at the interest rate of 14.45 % and my monthly repayment is $ 925 with loan ending in july 2017. I want to save money out of interest I will be paying for the remainder of my loan .
Can you suggest me good providers and things I need to consider before I apply for a balance transfer ? any introductory offer ?
Thank you
Hi Amit,
Thanks for your question.
Please note that to our knowledge, only Citibank and Virgin allow balance transfers to a credit card from a personal loan. If you’d like, you can click on the links to see the current offers available from both providers.
Hope this helps,
Shirley