Debt Consolidation Loans in Australia: Costs, Risks and Alternatives
Pros
- Can combine debts into one repayment; amounts may change on variable-rate loans
- A term gives a scheduled end date if repayments and loan terms are met
- Can lower your overall interest rate versus credit cards
- Simplifies budgeting with a single monthly payment
Cons
- Approval is harder while unemployed due to income checks
- Longer terms can mean more total interest paid
- Secured loans put an asset (often your car) at risk
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What a debt consolidation loan does
A debt consolidation loan is a personal loan you use to pay off several existing debts — credit cards, personal loans, buy-now-pay-later balances — leaving you with a single loan and one regular repayment. The appeal is simplicity and, potentially, a lower rate than high-interest cards. In Australia these come as secured (an asset such as a home or car is used as security) or unsecured (no asset is pledged as security). Compare the actual rates and fees, not just the label.
What to compare
- Comparison rate, not just the advertised rate: check the rate's assumptions and exclusions as well as the actual interest, all fees and total repayments for your loan amount and term. A headline comparison rate alone does not establish the cheapest or suitable loan.
- Loan term: a longer term lowers monthly repayments but usually increases total interest. Compare total repayments and affordability over the whole term rather than treating a smaller instalment as a saving.
- Fees: establishment fees, ongoing monthly fees, and early repayment or exit fees.
- Secured vs unsecured: secured can be cheaper but risks your asset if you default.
- Fixed vs variable rate: fixed gives repayment certainty, which matters when rebuilding.
Moneysmart's consolidation and refinancing guide explains how to compare total costs and consider alternatives.
Questions before deciding
Consolidation can simplify repayments but may cost more overall, especially with extra fees or a longer term. Do not base affordability on hoped-for income. Consider hardship support and independent help first; no loan suitability or approval is implied here.
The traps to watch
- Freeing up cards and re-spending: after consolidating, some people run the old cards back up, doubling their debt. Consider closing or freezing them.
- Stretching the term too far: smaller repayments over a longer term can increase total interest and fees.
- Dodgy 'debt agreement' operators: a debt agreement is different from a consolidation loan. Formal insolvency options can have serious consequences; seek independent financial counselling and legal advice before entering one, and obtain all costs in writing.
Before signing anything, it's worth a free chat with a financial counsellor. You can contact the National Debt Helpline for free help to discuss your options without a product sales pitch.
General information only, not financial advice. Rates, fees and eligibility vary — confirm current terms with the lender.
Sources and further reading
These links support the specific topics noted below, not every statement on this page. No product testing or legal or security review is claimed.
- Moneysmart: debt consolidation and refinancing — Total cost, loan terms, secured-asset risks and alternatives.
- Moneysmart: personal loans — Comparison-rate assumptions, fees and fixed versus variable repayments.
- National Debt Helpline — Direct free debt-help service and contact details.
- Moneysmart: financial counselling — Free, confidential services and how to find help.