Debt consolidation loans: when one loan saves you money

How Debt Consolidation Saves You Money

Credit cards, store cards and buy now pay later balances are some of the most expensive ways to carry debt, and when several run at once it is easy to miss a due date. Debt consolidation replaces them with a single personal loan, one repayment and one rate, and gives the debt an end date.

The saving comes from the rate gap, and it only holds if the term does not stretch out. Take $15,000 across three cards at an average of 20% p.a.: cleared over five years it costs $8,844 in interest. The same $15,000 on a five-year personal loan at 9.99% p.a. costs $4,118, a saving of about $4,700. Put it on a longer loan and more of that saving is lost to extra years of interest.

When Does Debt Consolidation Make Sense?

Moneysmart sets out four conditions, and consolidation can make things worse if any of them is missing.

It makes sense when

• You pay less overall: the rate and fees on the new loan are lower than on your current debts.
• You have a clear end date: the new term is no longer than your current debts.
• You can afford the repayments: the new repayment fits your budget, including if rates or your income change.
• You stop using the old credit: the cards you pay out are closed or their limits cut.

Be careful when

The balances are small and nearly paid off, the only saving comes from a longer term, or you would be turning unsecured debt into secured debt, for example by adding credit card balances to your home loan. The National Debt Helpline flags that last one because the home or car becomes security for what used to be card debt.

A broker's job here is the arithmetic: the total cost of your current debts against the total cost of the consolidation loan, including any establishment fee and any early payout fees on the old debts, so you can see whether you genuinely come out ahead.

Types of Debt Consolidation Loans

Unsecured consolidation loans

An unsecured personal loan needs no asset as security; approval rests on your income, employment and credit history. The major banks published unsecured ranges from 6.99% to about 22% p.a. on 30 September 2026, so where you land in the range decides whether consolidation saves money. Westpac was also offering to waive up to 100% of the establishment fee on new unsecured loans used to combine debts, for applications by 28 January 2027 (eligibility criteria apply).

Secured consolidation loans

A loan secured against a car or other asset is priced lower, and the difference is largest for borrowers without excellent credit: CommBank's secured car loan runs 6.79% to 11.29% p.a. against 7.25% to 22.25% p.a. for its unsecured fixed loan. The asset is at risk if you cannot keep up the repayments.

Consolidation with bad credit

Specialist lenders consolidate debts for borrowers with past credit problems, at higher rates: Jacaranda Finance publishes 16.95% to 29.95% p.a. That can still beat a stack of overdue cards, but check the total cost carefully. The bad credit personal loans guide covers the lenders and their terms.

The Consolidation Process: What to Expect

A broker starts with a free assessment of your current debts, their rates and your budget, then compares consolidation loans across the lenders on their panel, including the total cost of switching against staying where you are.

Once you choose a loan, the broker prepares and lodges the application. After approval, many lenders pay your existing creditors directly and close out those accounts. You are left with one repayment at a lower rate and a clear debt-free date to work towards.

Debt relief offers, scams and free help

If you are already struggling to make repayments, a new loan is rarely the answer, and the National Debt Helpline notes you usually will not qualify for one. Its financial counsellors are free, independent and confidential: call 1800 007 007 (weekdays 9:30am to 4:30pm) or visit ndh.org.au.

Warning signs

• "Government debt relief" and one-payment offers. These are often Part IX debt agreements under the Bankruptcy Act, which stay on your credit report for five years or more.
• Up-front fees before any loan. The helpline warns of consolidation scams that take set-up fees and never lend, and says never to respond to consolidation ads on social media or in unsolicited emails.
• No licence. Credit providers and brokers must hold an Australian Credit Licence or be a representative of a licensee. Check on ASIC's professional registers before you sign anything.

Moneysmart also lists Way Forward (1300 045 502), a not-for-profit that sets up free debt management plans for people in long-term hardship. And if your debts are over $10,000, a creditor can apply to make you bankrupt, which is one more reason to get advice early rather than late.