Quick answer
A debt consolidation loan rolls several debts, such as credit cards, buy now pay later and personal loans, into one new loan with one repayment. It helps when the new loan costs less overall, ends no later than your current debts would, fits your budget even if things change, and you close the old accounts. If it fails any of those tests, it may make things worse.
Key points
- Consolidation only helps if the total cost goes down, not just the repayment.
- Keep the new term no longer than your existing debts.
- Close or cut the limits on cleared cards so the debt doesn't regrow.
- Free help is available from the National Debt Helpline on 1800 007 007.
Three credit cards, a buy now pay later account, an old personal loan and a phone plan, each with its own due date and its own fees. It’s no wonder one tidy repayment sounds appealing. Consolidation can genuinely help. It can also quietly cost more and leave you with fresh credit to fill. The difference lies in four simple tests.
What is a debt consolidation loan?
It’s a new loan, usually a personal loan, used to pay out several existing debts so you’re left with one repayment to one lender. Moneysmart lists the kinds of debts people commonly roll together: credit cards, personal loans, store cards, buy now pay later and car loans.
Consolidation is different from a hardship arrangement or a debt agreement. You’re taking on new credit, so a lender will assess you the usual way: income, expenses, credit report and whether the new repayment fits.
How do you know whether consolidation will help?
Moneysmart’s guidance boils down to four tests. Consolidation is worth considering when all four are true:
- You pay less overall. The new loan’s interest and fees, across the full term, cost less than your current debts.
- The term is no longer. The new loan ends no later than your existing debts would, so you keep a clear finish line.
- The repayment fits even if life changes. You could keep paying if your income dipped or living costs rose.
- You close or cut the old credit. The cleared cards don’t fill back up.
If one test fails, pause. A longer term with a smaller repayment can feel like relief while adding thousands to the total. Moneysmart’s own worked example shows a lower rate over a much longer term ending up costing more.
How do you compare your current debts with a new loan?
Write everything down. It’s the single most useful hour you’ll spend.
| For each current debt | For the new loan |
|---|---|
| Balance owing | Amount needed to clear everything |
| Interest charges and fees | Interest charges and all fees |
| Remaining term or payoff time | Term |
| Regular repayment | Regular repayment |
| Exit or payout fees | Fixed or variable, and extra repayments allowed? |
Then add up the total you’d pay on each side. Use the planner to check the single repayment against your spare cash. Our car budget planner works for this too: put your income and expenses in, leave the car fields at zero, and the comfortable repayment figure still applies.
If the new loan clearly wins on all four tests, you can see your consolidation options before committing to anything.
Should you secure a consolidation loan against your car or home?
Securing the loan can lower its cost, but it changes the stakes. Credit card debt is unsecured: if you can’t pay, the lender can pursue you but can’t take your car. Once that debt is secured against an asset, the asset can be sold if you fall behind. Moneysmart flags this as a key risk, along with extra fees such as legal, valuation and stamp duty costs that can apply to secured loans.
Our page on secured vs unsecured personal loans explains the trade-off in more detail.
What traps should you avoid?
- Debt growing back. Close the cleared cards or cut their limits the day they’re paid out.
- Stretching the term. A smaller repayment over longer can cost more in total.
- Rolling in new spending. Borrow what you need to clear the debts, not extra.
- Unlicensed “debt help” firms. Moneysmart warns about pressure to rush, blank documents, refusal to discuss repayments and missing written costs. Check licences on ASIC’s Professional Registers Search.
- Multiple applications. Each one can show on your credit report, and too many can lower your score.
What if consolidation isn’t right for you?
If you’re already behind, or a new loan wouldn’t pass the four tests, there are other routes:
- Ask each lender for a hardship variation: more time, reduced repayments or a short pause.
- Call the free National Debt Helpline on 1800 007 007 to talk to a financial counsellor.
- If your credit history is holding you back, read bad credit personal loans.
Our guide to falling behind on repayments covers hardship requests step by step, and they work the same way for most consumer loans.
What does a consolidation plan look like in practice?
An illustrative example, without real figures: someone has two credit cards, a buy now pay later balance and a small personal loan, all with different due dates. They list every balance, cost and remaining term, and find a single loan that costs less overall and finishes within the same period. On the day the new loan pays everything out, they close one card, cut the other’s limit right down, and remove the buy now pay later app from their phone. They set the new repayment to come out the day after payday.
The loan did the arithmetic, but the habits did the work. Without closing and cutting the old credit, the same person could end up with the new loan plus fresh card balances within a year.
One repayment, with eyes open
If your list of debts shows that one loan would cost less, end sooner or at the same time, and fit your budget with room to spare, consolidation can be a real reset. Start an application with our secure partner and see your options before you commit. A real person can help you compare them against your list. Please list every debt and expense accurately, because a complete picture is what produces an option that genuinely helps.
Frequently asked questions
What debts can be consolidated?
Typically credit cards, store cards, buy now pay later balances, personal loans and sometimes car loans. Moneysmart lists all of these as debts that can be rolled into one.
Will consolidating my debts save money?
Only if the new loan's interest and fees, over its full term, cost less than your current debts would. A lower repayment over a longer term can cost more overall.
Should I use my home or car as security to consolidate?
Be careful. Turning unsecured debts into secured debt means the asset can be sold if you can't repay. Weigh that risk seriously.
What should I do with my credit cards afterwards?
Close them or reduce the limits. Having available credit again can tempt you back into debt, which is one of the main risks Moneysmart highlights.
Are debt management companies safe?
Some are not. Moneysmart warns about unlicensed firms, pressure to rush, blank documents and missing written costs. Check licences on ASIC's Professional Registers Search.