What is a debt consolidation personal loan?

If you’re paying off multiple credit cards, car loans, personal loans, or a combination of these, chances are you’re paying more in fees and interest than you need to. This is where debt consolidation using a personal loan can be handy. By rolling all your existing debts into one loan, you can simplify your financial situation and potentially reduce how much you’ll pay in account keeping fees and interest costs.

Why use a personal loan for debt consolidation? 

Using a personal loan to consolidate debts can be a good strategy for borrowers who feel their financial situation is getting out of hand. With the right debt consolidation personal loan, it’s possible to pay less interest and fees on your debt, relieving some of your financial pressure.

Debt consolidation can help you to better manage your debts and avoid defaulting on a repayment. With just the one repayment to think about, calculating your incoming and outgoing expenses should be much simpler.

Using a personal loan for debt consolidation could also let you take advantage of features that your current loans may not offer, such as making unlimited extra repayments or a redraw facility. Changing your repayment frequency by switching to weekly or fortnightly repayments from monthly repayments can help you reduce the amount you pay in interest costs on your loan as interest is usually charged daily. So paying more frequently can help you reduce those charges.

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Advertised Rate



Comparison Rate*


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Loan term

1 year to 7 years

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More details

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What are the pros and cons of debt consolidation personal loans?

As with any financial product, there are pros and cons to using it. You need to consider all of them in deciding whether a debt consolidation personal loan is best for you financial situation. 

  • Easy all-in-one monthly repayment
  • Budgeting is easier with one regular payment
  • Fewer account keeping fees
  • Potentially lower interest rate
  • May not be the cheapest option available
  • May be difficult to get loan approval if you’ve already defaulted on payments
  • Paying a debt over a longer loan term can mean paying more in interest, and in turn a higher total cost of the loan
  • If you get access to more credit in your consolidated loan, you could end up spending and owing more throughout the life of the loan
  • Avoid refinancers who promise getting you out of debt, no matter how much you owe

What types of debt can personal loans solve?

  • Credit cards: You may have multiple credit card debts that you want to consolidate in order to make repayments easier to manage over a set loan term. Or perhaps you only have one credit card that you wish to consolidate with other types of debt. Either way, credit card debt is one of the more common forms of debt that borrowers choose to consolidate with a personal loan. It's worth noting, however, that you likely also have the option of a balance transfer if you are looking to consolidate credit card debts alone.
  • Existing personal loans: Regardless of the original loan amount or purpose, you may have one or more existing personal loans that you would like to consolidate with other credit products by taking out a new personal loan. If this is the case, also consider whether refinancing could also be an option.
  • Car loan: If juggling your car loan repayments with other types of debt has become difficult to manage, a debt consolidation loan may simplify your finances and potentially lead to cost savings, depending on your personal situation. Keep in mind, however, that if your current car loan is a secured loan, it may have a more competitive interest rate than an unsecured personal loan can offer. Be sure to make a comprehensive comparison before making your decision.
  • Debt collection agency debt: If you have outstanding bills or fines owed to a company or organisation, which they have made failed attempts to recover from you, they might pass them on to a debt collection agency. Some credit providers may allow you to consolidate debts held by debt collection agencies with a personal loan.

How can you consolidate your debts using a personal loan?

The best way to consolidate your debts will depend on your situation. 

For example, if you have multiple credit card debts and no existing personal loans, then you might consider taking the following steps to consolidate your credit card debts: 

  1. Search and compare personal loans to find a competitive product that suits your needs.
  2. Use RateCity's Personal Loan Calculator to get a repayment estimate and to help you decide on the most suitable loan term.
  3. Apply for your preferred loan product.
  4. Once approved, use the cash to pay off those credit card debts.
  5. Close the credit card accounts.
  6. Continue to make your debt consolidation personal loan repayments until your debt is paid off.

However, if you already have a personal loan, and also owe money on a credit card and a car loan, you may be able to refinance your current personal loan to cover the other debts, and continue to enjoy the personal loan’s interest rate.

But if your existing personal loan or car loan is a fixed rate loan as opposed to a variable rate loan, you may have to pay an early repayment fee to consolidate that debt. Check with your lender to find out how much you may need to pay, including any loan application fees or establishment fees for opening a new loan.

If you’re not sure of the best debt consolidation option for you, it may be worth getting some professional guidance from a financial counsellor or broker.

Example: Bella rolls her debts into one

Bella has two credit cards, each with a $2000 debt owing and monthly repayments due at separate times. They both have interest rates over 20 per cent. She also has $5000 left on her car loan that she is paying off on a monthly basis with an interest rate of around 8 per cent.

She makes a total of three separate repayments each month, plus pays $250 in annual fees for the cards and car loan. While she can afford all of these repayments, Bella finds it hard to keep track of due dates (making a default more likely) and how much she has paid off on each credit facility. 

Bella has her sights set on a big overseas holiday, but wants to be debt-free before she starts to save. She decides that the easiest way to do this is to roll all her debts into a personal loan so she can make one monthly repayment and control the time it takes to repay the debt. She opts for a personal loan with an interest rate of around 10 per cent – half of what she’s currently paying on her credit cards. 

Once she is approved for the personal loan, Bella uses the cash to pay off the credit cards, effectively rolling them into the one loan. As her car loan doesn’t allow unlimited extra repayments, Bella has to pay a small fee to pay out the loan and roll it into her new personal loan. Bella calculates that the money she can save on annual fees and by paying her car off sooner will make this upfront cost worth it in the long run. 

Now, with all her debts rolled into one, Bella knows that she can be debt-free by this time next year, and start saving up for her dream holiday.

How do I compare debt consolidation personal loans?

While it is certainly important to compare interest rates when choosing between debt consolidation loan options, there are also other factors worth considering in order to find the best personal loan for you.

Interest rate The interest rate determines the amount of interest you will be charged on the money borrowed.
Comparison rate The comparison rate combines the interest rate with any major fees charged, providing a better idea of the overall cost of the loan.
Fees Some of the fees you may be charged include application fees, establishment fees, monthly fees, other ongoing fees, extra repayment fees and early repayment fees or break fees. Be sure to factor these into your calculations when deciding whether it is worth consolidating your debts with a new personal loan.
Secured vs unsecured When you apply for a secured loan, you are required to offer something as security, or collateral, to the lender. If you don’t repay the loan, the lender will seize your collateral. Unsecured loans don’t have any collateral attached. This is riskier for lenders, so unsecured loans often carry higher interest rates.
Extra repayments Some loan products will allow for extra repayments, meaning you may be able to pay off your loan sooner than the end of the loan term. Keep in mind there may be a limit placed on how much extra you can pay, and sometimes lenders will charge a fee for making extra repayments.
Loan term The loan term is the length of time you have to pay off the loan. Most personal loan terms range between one and five years, with some lenders offering terms of up to 10 years. Longer loan terms will likely mean lower monthly repayments, but more total interest payable, while shorter loan terms will typically mean more expensive monthly repayments but less interest paid over the life of the loan.


Can I get a debt consolidation personal loan with bad credit?

Consolidating debt using a personal loan may not be the most ideal solution for borrowers who have a bad credit history, such as when you have previously defaulted on repayments. If you don't have a good credit score, it is unlikely that your application for a low-rate personal loan would be approved. Any loan rejection could further damage your credit score.

If you are struggling to afford your loans and can’t consolidate your debts, consider contacting your creditors immediately to discuss a financial hardship plan. For borrowers already in a dire financial situation, it may be wise to seek financial counselling to figure out an appropriate debt consolidation plan. A professional financial counsellor can also help you enter a debt agreement, which is a form of bankruptcy.

For more information on contacting a financial counsellor, visit the ASIC Money Smart website or call the National Debt Helpline on 1800 007 007.

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Is there a risk that debt consolidation could add to my debt?

When it comes to any kind of financial commitment, it's important to weigh up the risks involved before you sign on the dotted line. Though taking on a debt consolidation loan may make your debts easier to manage, it's still crucial to have a strategy in place to ensure you meet the minimum repayments on the new debt. Failing to do so could lead you to default, thus hurting your credit score and potentially racking up late fees and an increased amount of interest charges.

Carefully consider your choice to consolidate your debts by getting an estimate of what your personal loan repayments might look like. Then you can assess whether they will fit comfortably within your budget, and avoid adding further debt or getting into a position of financial strain.

Tips to avoid adding to existing debt

  • Don't be tempted to apply for a personal loan with a borrow amount that's more than your existing debt. The purpose of a debt consolidation personal loan is to consolidate and get on top of existing debt, not to add more.
  • Don't continue to use your credit card after you have paid down the amount owed. Doing so will mean not only having to cover your new debt consolidation personal loan repayments, but additional credit card bills as well.
  • Consider any break fees and/or establishment fees you may be liable for when consolidating your debts. If these costs add a substantial amount to your existing debt, it may be worth paying down your individual debts rather than consolidating. Be sure to make comprehensive calculations before deciding on what's right for you.

What other options are available as an alternative to debt consolidation?

A debt consolidation personal loan can be a helpful tool for some, but there are other options that may be worth exploring. Some of these include:

Frequently asked questions

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How do I consolidate my debt if I have bad credit?

The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.

However, people with bad credit histories can make debt consolidation work by following this three-step process:

  1. First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
  2. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
  3. Third, instead of spending those savings, use them to pay off the new loan.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.

What are the pros and cons of bad credit personal loans?

In some instances, bad credit personal loans can help people with bad credit history to consolidate their debts, which can help make it easier for them to clear those debts. This is because the borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate and potentially fewer fees.

However, this strategy can backfire if the borrower spends the loaned funds instead of using it to repay the new loan. Another disadvantage of bad credit personal loans is that they have higher interest rates than regular personal loans.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility of your home, car or personal loan.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.

Can you pay off a quick loan early?

Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.