What is debt consolidation?

Debt consolidation combines a number of personal debts, whether that be credit cards, car loans or personal loans, into one single debt with a sole lender. Aside from combining multiple debts, debt consolidation can be used as a strategy for saving money on repayments and interest, if you can lower your overall interest bill by finding a low-rate debt consolidation loan.

How does debt consolidation work?

As an example, say you have three forms of personal debt:

  1. Travel credit card with a debt of $1,500
  2. Rainy day credit card with a debt of $500.
  3. Personal loan with a debt of $2,000.

With each of these debts likely having a different interest rate, repayment amount and due date, it can be a challenge to stay on top of them all. Debt consolidation allows these three debts to be ‘consolidated’ into one personal loan. This allows borrowers to have just one set of recurring repayments to make over a set term, with a single interest rate.

For more on debt consolidation, including the advantages and disadvantages, see more here.

Which lenders offer debt consolidation loans?

From big-four banks to digital lenders, there are a number of lenders that offer debt consolidation loans. Some of these include:

  • CommBank
  • NAB
  • Westpac
  • ANZ
  • Great Southern Bank
  • Newcastle Permanent
  • Teacher’s Mutual Bank
  • OMM
  • Now Finance
  • Latitude
  • Wisr
  • Moneyplace

Why consider a debt consolidation loan?

Considering a debt consolidation loan means the process of paying multiple debts is streamlined, with one due date and one set of fees – if fees are associated with the lenders product. The biggest benefit to most borrowers, is that debts with higher interest fees, like credit cards, are suddenly subject to lower rates.

While this method can make it easier to manage multiple debts, it can also backfire if you end up stretching out your debts out over a longer loan term. This means potentially paying more interest.

Before considering whether a debt consolidation loan is right for you, like any finance product it’s important to weigh up the positives and negatives. Ultimately if a debt consolidation loan benefits your current situation by streamlining debts at a faster pace and lower cost, then it should be considered as a positive step forward to enhancing your financial position.

Other methods to consolidate debts

Aside from combining your debts into a debt consolidation loan, there are a number of other methods available to help eliminate multiple debts.

Credit card balance transfer

This method requires moving the balance from one credit card to another with a low-rate or if available, a 0% interest rate. Typically, transferring the balance and paying off the credit card while the low-rate or 0% offer is effective, will ultimately save both time and money on interest expenses. On the flip side, if payments cannot be made, it may end up costing you more.

Absorbing debts into home loans

By absorbing all existing debts into a mortgage, homeowners are able to refinance their home loan to a larger loan accommodating for these debts. Homeowners may also be able to apply to increase their existing home loan, depending on the lender and the loan structure. Absorbing debts into a mortgage allows all debts are gradually paid off by way of regular mortgage repayment.