Debt consolidation loans

Simplify your finances by consolidating multiple debts into one loan with a single manageable rate.

By   |   Verified by David Boyd   |   Updated 31st August 2022

As seen on

Media - The Sydney Morning Herald
Media - Yahoo Finance
Media -
Media - Daily Mail Australia
Media - Australian Fintech
Media - Dynamic Business

Comparing debt consolidation loans for over months

Nectar Personal Loan

Nectar Personal Loan

Interest rate

From 8.95% (personalised)

Comparison rate

From 0.00% (personalised)

Repayment period

3 years

Application fee


Monthly repayment


Total repayment



  • Unsecured from $1,000 - $20,000 for Debt Consolidation, Car Loans, Home Improvement Loans, Holiday Loans, Emergency Loans or Wedding Loans.
  • Your personalised interest rate is fixed for the life of the loan.
  • Repayments can be made weekly, fortnightly or monthly depending on your pay cycle with no early repayment penalties.
Pioneer Finance Debt Consolidation Loan

Pioneer Finance Debt Consolidation Loan

Interest rate

From 11.95% (personalised)

Comparison rate

From 0.00% (personalised)

Repayment period

3 years

Application fee

From $270.00

Monthly repayment


Total repayment



  • Get a secured loan with a low fixed rate that never goes up
  • Pay at your pace loan terms up to 7 years with payments weekly/fortnightly/monthly
  • Fast and friendly service

Debt is easily acquired, but hard to get rid of. It happens gradually. You may open a credit card account or two, and take out a personal loan. Add on your student loan and a lease payment, and before you know it, you have more debt commitments than you can afford.

It's easy to get frustrated, but thankfully there's a potential solution: debt consolidation.

How debt consolidation loans work

If you have lots of different debts and are unable to keep up with repayments, you can bundle them into one loan to reduce the monthly payments.

Debt consolidation happens when you borrow enough money to pay back all of your existing loans, and then owe only one debt to a new lender. When loans are combined, you only have a single payment to make every month. You pay one interest rate, which can be fixed or variable based on the type of loan you choose. If you don't add to your debt until you have paid off your new combined loan, consolidating is a clever tactic that will help you get ahead financially.

Lower interest, less stress

Debt consolidation is a straightforward method of converting existing high-cost unsecured loans into one loan at a lower interest rate. This is designed to help you pay off debts quickly and without stress. You can combine the debt into a home equity loan, a credit card balance transfer or a personal loan.

It basically covers all unsecured personal debt – credit cards, store cards and bank loans. When you are paying a variety of high interest rates, a debt consolidation loan can save you thousands over your repayment period.

For example, if you have a $5,000 credit card balance at 21% p.a., a $6,000 personal loan at 15% p.a. and a $3,000 store card balance at 22% p.a., you can apply for a debt consolidation loan of $14,000 that comes at a single interest rate, lower overall than what you are currently paying. This helps you pay down the total debt more quickly because you are paying less interest.

Debt consolidation, however, is not a magic bullet to solve your debt problems. It won't help change your purchasing habits, which generated your debt in the first place. It would also not help if you're at such a stage of financial trouble that you don't yet have the resources to borrow at a lower interest rate.

Types of debt consolidation loan

There are two types of debt consolidation loan:

  • Secured. This type of consolidation loan is where an asset, usually your home, secures the money you borrow. Be aware, however, that if you fail to make repayments you may lose your property.
  • Unsecured. In this case the consolidation loan is not covered by any security or collateral, but approved based on your credit profile.

Alternatives to a debt consolidation loan

A debt consolidation loan is not the only way of dealing with your debts. Depending on the severity of your situation, you could consider a balance transfer credit card, home loan refinancing, or a debt agreement.

  • Balance transfer credit card: A balance transfer credit card is a form of credit card that allows you to transfer your current credit or store card debt from one or more existing cards to a new one, and repay your transferred debt within a set term of six to 12 months (sometimes longer) at a rate as low as 0%. This is typically offered by card companies to attract new customers and could be a good way to stay ahead of your credit card debts. However, it may be difficult to be approved for a balance transfer credit card if you have a poor credit score, so plan to apply before your debt situation gets so bad that you are missing repayments.
  • Home loan refinancing: If you have equity in your current home, you might be able release some of the equity by refinancing your home for a larger amount than your current home loan balance, using the funds to pay off your other debts.
  • Debt agreement: This is a possible solution for anyone who is very deeply in debt or actually insolvent. It could take the form of a court-approved Debt Management Plan, a Debt Repayment Order, or, as a last resort, bankruptcy. A credit counsellor or insolvency practitioner can advise on your options.

Learn about debt consolidation loans

Answers to common questions about applying for and using debt consolidation loans.

  • FAQs

  • Pros & cons

  • Tips

Can you get a debt consolidation loan with bad credit?

Credit scores are a significant aspect in meeting the requirements for a debt consolidation loan, as they are a huge factor in determining whether you will be approved for the loan and the interest rate you will pay. Usually when your credit score drops due to late debt payments – especially credit cards – borrowing money can be hard if not impossible.

If you do succeed in getting a debt consolidation loan with bad credit, you can plan to pay very high interest rates. Generally speaking, the more black marks there are in your financial history, the more you are considered a bad prospect and the higher the interest rates you will pay.

Do debt consolidation loans hurt your credit score?

The short response is yes, but it is necessary to explain that the impact would not be major or long-term. Lenders conduct a hard credit enquiry while considering you for a loan, which can initially hurt your credit score marginally. However, once you take out a loan and make your payments on time, your credit score will improve. By the time you are done paying off your debt, your ranking will be at the same point, if not better than when the loan was taken out.

Do I have to get a debt consolidation loan from my normal bank?

No. You can apply for a debt consolidation loan from any lender offering such loans, and you won't need to switch to banking with the new lender. But it might be a good idea to compare your current bank's debt consolidation loan offering with the competing loans listed here at Finty, since your current bank may be more likely to approve your loan.

Do I have to use the whole loan to consolidate my debts?

It depends on the lender's methods. Some lenders may ask for a detailed list of your debts and then pay off the balances (leaving you to close the accounts), which means that the amount of your new loan will be equal to the exact sum of your old debts. Other lenders will rely on you to work out how much you need, and pay out the debts yourself.

In this latter case you could in fact borrow more than you actually need to clear your existing debts, but other than rounding up to the nearest hundred dollars, it's not a good idea. Minimising the borrowing amount will see you paying less in interest costs and having smaller monthly repayments, and you will avoid the temptation to go on a spending spree with the surplus funds.

How much does it cost to consolidate debts?

Fees differ, but there will usually be a one-time loan application fee (the standard range is $100 to $250), or up to $50 for a balance transfer credit card annual fee. In the case of consolidation loans there are also interest costs involved, plus any account administration fees and possibly late payment fees.

Is a debt consolidation loan a good idea?

Whether debt consolidation is the best choice will depend on your personal financial position.

A debt consolidation loan is an effective way out of debt but not a viable option for everyone. So it's important to consider your financial situation before you reach for a debt consolidation solution.

With a debt consolidation programme, you can pay back all your creditors and liabilities at once so that you only have the one bill instead of keeping track of dozens of individual debt repayments. Typically, this comes at a reduced interest rate and you can clear your debt more easily. It's a smart way to stay on top of your finances and debt situation.

Depending on the terms of the new loan arrangement, however, you may end up paying more interest over the duration of the loan (because the loan period will likely be extended), or you could end up with more debt because you still can't keep up with repayments. So, when looking at debt consolidation programmes, be sure to shop around and compare for deals that will actually relieve your debt situation and not compound it.

Is a debt consolidation loan the right solution for everyone?

Before agreeing to a debt consolidation loan, make sure that it is the right option for you. Otherwise, you might end up in a situation worse than the one you started with. As with any financial decision, properly consider your options and financial situation before making any decision.

You should consider staying away from a debt consolidation loan if:

  • The lending amount will not cover all of your existing debts
  • Current debts are near settlement
  • The costs are so high that they outweigh the value of getting a new loan
  • Fees for early redemption of the current debts are so high that they overshadow the advantages of taking out a new loan
  • You cannot afford to keep up the loan repayments every month for the new loan term's length

Ultimately the final decision is yours. You need to weigh up the risks against the benefits.

If you're unsure about taking such a step, however, it's a good idea to get advice from a personal financial advisor. This way, you will make an educated decision based on the expert advice and can escape debt consolidation loan pitfalls.

Is refinancing my home loan and using equity a good way to repay debt?

If you have a reasonable amount of equity in your home (that is, the amount owing on your home loan is considerably less than the market value of your home) you can certainly release some of the equity and use it to pay off your other, high-interest debts. You do this by negotiating a new loan for a higher amount with your current home loan lender, or by refinancing with a new lender, and then use the finds to pay off your existing home loan and other debts.

However, it only works well if:

  • Any early exit fees on your current loans are not so high as to make it not financially worthwhile
  • The interest rate on the new home loan is lower than the average interest rate on your existing debts
  • You can afford to make the new monthly loan repayments without straining your finances
  • You are comfortable with the idea that you may be turning short-term debt (e.g. a credit card debt or 5-year personal loan) into long-term debt (a typical home loan term of 20 years or more).
  • You are aware that you may be turning unsecured debt (e.g. credit cards) into debt secured on your home, which you could risk losing if you fail to meet the required repayments
  • You are not tempted to spend more, and get into more debt

What is the difference between a debt consolidation loan and a debt agreement?

  • Debt agreement involves negotiating with lenders with a view to repaying less than is due on your debts. This method is most often used by individuals who are actually insolvent, and may involve the services of a financial counsellor to conduct the negotiations. Entering into a debt agreement will place a negative entry on your credit file for a minimum of five years, and of course will have a downward impact on your credit score, making it virtually impossible for you to be approved for new credit until the entry is removed.
  • Debt consolidation is an attempt to merge multiple loans by taking out a new loan to repay all of them, ideally at a reduced interest rate and lower loan cost. The aim of debt consolidation is to repay all debts in full, thus improving your credit history in the long term.

What kinds of debt can be consolidated into a new loan?

Depending on rules set by individual lenders, you may be able to consolidate:

  • Credit card debt
  • Store card balances
  • Personal loans
  • Overdue utility and telco bills

A lower interest rate

If much of your existing debt was accrued on credit cards or store cards, you are likely to pay a lower interest rate on your combined debt because a debt consolidation loan is a personal loan. Personal loans typically have lower interest rates than most credit cards.

A single monthly payment

You’ll have just one payment every month and no longer have to keep up with multiple monthly payments to different lenders. And because your debt consolidation loan term may be quite long, your monthly payment may be significantly lower than the sum of the many monthly payments you were previously making.

Credit score improvement

There is also a part of the credit score factor that is associated with debt consolidation. When you combine your debts by opening a new line of credit, you may initially see a small drop in your credit score. Nonetheless, over time you will see an increase in your score if consolidating helps you to pay off your debt more quickly. When you regularly make your payment on time each month, making each payment might also give your score a lift.

Debt consolidation scams

Many lenders sell debt consolidation loans directly to financially distressed customers. Unfortunately, some of those loans are not really customer-friendly. Interest rates can be extremely high, the terms of the loan can be very long, or certain unfavourable provisions, such as excessive penalty fees for one missed payment, can be part of the deal.

Fewer account-keeping fees

Most forms of lending have either monthly account administration fees or annual fees. By reducing your multiple borrowings down to one loan, you will save money on those extra fees, now dispensed with.

Getting further into debt

One of the greatest risks of debt consolidation is that you are likely to apply for new loans without addressing the financial issues that have forced you to fall into debt in the first place. To prevent this from happening, do not merge debt until you have a strategy to stop overspending. Create a budget on which you are going to survive, preferably start contributing to an emergency fund and pledge not to use any recently issued credit cards unless you can pay the balance in full each month.

Paying more interest in total

When you take out a debt consolidation loan to lower your monthly repayments, it's not all a result of the lower overall interest rate. You are also stretching out the repayment period, and the total interest paid amount may be higher because you will be paying interest for such a long time.

Putting your home at risk

There are several ways to consolidate debt, including unsecured debt consolidation loans and balance transfers, all of which can be excellent choices for reducing the costs without taking on a lot of extra risks. However, when you select secured debt consolidation and use your home as collateral, if you fail to fulfil your loan commitments you will be in a tough position, and you may just lose your home.

Calculate your ideal borrowing amount and repayment period

If you're committed to lowering the amount you’re spending on repaying your debts, it is important that you do some due diligence work first. Consider the following five points:

  • Calculate how much you need to borrow. Add together all the debts you want to consolidate. This will determine the total amount you need to borrow. It may be tempting to apply for a bit more, but try not to give in to this temptation, as that will be just creating more debt.
  • Decide your payback period. Don't exaggerate your capacity to repay. If you need to borrow $20,000 and you're going to have to repay it for four years, don't think you can do it in less.
  • Look at your bank account. Weigh how much you earn against how much you spend each month (excluding any repayments on your existing debts). What remains is the 'free cash flow.' Take your total loan and divide it by that amount. The result is the number of months it would take to repay the loan.
  • Allow for unexpected events. Once you have calculated the estimated repayment period, multiply it by 1.5 to compensate for interest costs and also to give you a safety cushion. That way, if something unexpected happens, you have accounted for that in your calculations and will not be thrown by it.
  • Don't waste spare cash. After making your loan repayment, you can always use spare money to make extra payments, since most debt consolidation loans do not charge fees for early repayments. Remember, the longer it takes to pay back, the more interest you pay.

How to compare debt consolidation loans

Once you've made the decision that you can handle a debt consolidation loan wisely and have worked out your numbers, it's time for comparing debt consolidation loans to get the best deal. These are the loan features you need to consider:

  • Interest rate. There's a wide variety of interest rates advertised, and while the loan with the lowest interest rate is not necessarily the best one for you, the interest rate should play a significant part in your decision.
  • Extra charges and fees. Make sure to check the extra fees charged when applying for a debt consolidation loan. These could be a loan establishment fee, monthly or annual account-keeping or administration fee, late payment fee and early exit fee.
  • Loan terms offered. It might be tempting to take the longest possible term on your new loan, but if you find you can afford to spend a bit extra per month for a shorter loan duration, you'll save more money. So, don’t jump into long term contracts when you can afford shorter ones because you want to pay less every month. You will only end up paying more overall.

What to look out for when considering debt consolidation

When you're trying to keep your finances on track, a debt consolidation loan might help but you've got to be absolutely sure it's a smart decision for you first. Ask your self the following questions:

  • Can you handle the repayments? Do the maths, and be practical about what you would achieve with a debt consolidation loan. Life will be easier when you have to make only one payment every month, but make sure the new repayment amount is something you can afford.
  • Can you avoid incurring other debt? Discipline is crucial in making debt consolidation work. When you have taken out a debt consolidation loan, it's important to not take out any new loans or credit cards because you will soon be overburdened again, and back to where you started.
  • How much will it cost to pay out your current debts? You won't be charged any fees for paying out your current credit card and store card debts with funds from a debt consolidation loan, because they are lines of credit, not loans. But if formal loans are a part of your current debt, you may have to pay the lender an early exit fee when you pay off the balance. Check each loan's terms and conditions to find out if this is the case, and if so, how much it will cost you, and if it's worth paying off early.