What are the pros and cons of debt consolidation?

Pros: Simplifies multiple repayments into one, may lower your overall interest rate, can reduce monthly payments, and makes budgeting easier. Cons: You may pay more interest overall if the loan term is longer, there can be fees (establishment fees, break costs on existing debts), and it does not address underlying spending habits. Consolidation works best when the new rate is meaningfully lower than your current weighted average rate.

When does debt consolidation make sense?

Debt consolidation makes sense when you can secure a lower interest rate than your current debts, particularly high-interest debts like credit cards (often 18–22%). It is most effective when you commit to a shorter loan term and avoid accumulating new debt. If consolidation only lowers your monthly payment by extending the term, you may end up paying significantly more in total interest. Always compare total cost, not just the monthly payment.

Does debt consolidation affect my credit score?

Applying for a consolidation loan involves a credit check, which may cause a small temporary dip in your credit score. However, consolidation can improve your score over time by reducing the number of open accounts, lowering your credit utilisation ratio, and helping you make consistent on-time payments. Closing old credit card accounts after consolidation can also help, but keep your oldest account open if possible to maintain credit history length.

What types of debt can be consolidated in Australia?

Most unsecured debts can be consolidated, including credit cards, personal loans, store cards, buy now pay later balances, and medical bills. Some lenders also allow car loans or other secured debts to be included. HECS-HELP and tax debts generally cannot be consolidated into a personal loan. In Australia, common consolidation options include personal loans from banks or credit unions, balance transfer credit cards, and home loan refinancing (if you have property equity).

Debt Consolidation Calculator

Enter your current debts and a proposed consolidation loan to compare monthly payments, total interest, and overall cost. See if consolidating saves you money.

Last verified: 1 July 2025

Does debt consolidation actually save money in Australia?

Debt consolidation saves money only when the new rate is meaningfully lower than your current weighted average rate AND the new term is not longer than your current debts. Credit cards in Australia sit at 18-22% p.a.; unsecured personal loans typically 9-15%. Extending the term to cut the monthly payment usually increases total interest. Source: ASIC MoneySmart; RBA Retail Deposit and Lending rates.

Worked example. $25,000 spread across two cards at 20% plus a $10,000 personal loan at 13% — monthly repayments ~$1,050, total interest if held to term ~$12,800. Consolidating into a $35,000 personal loan at 11% over 5 years: monthly ~$761, total interest ~$10,700. Saving ~$2,100 — but only if you don't rack up new card debt on the freed limit.

General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.

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