consolidate.au

A plain-language guide to debt consolidation

Consolidate debts into one loan: what it can cost, and where help is

One loan from many, weighed honestly

Debt consolidation rolls several debts into one new loan, with one repayment to one lender. Moneysmart says it can make repayments easier to manage, and that it can cost more if the new rate or fees are higher, or if the loan takes longer to pay off.

General information, not financial or legal advice. This guide does not arrange loans or give financial advice. For your own situation, ASIC’s Moneysmart and the National Debt Helpline, a free financial counselling service, are the places to check.

Five strands twisted into one long ropeOn the left, five coloured strands hang from hooks on a frame. They curve together and are twisted into a single rope, which runs on along a ropewalk, resting on three wooden stakes, much further than the strands themselves reach.
  • Credit cards
  • Personal loans
  • Store cards
  • Buy now pay later
  • Car loans
  • One new loan
Drawn for this guide: five kinds of debt Moneysmart lists as ones people might consolidate, twisted into one new loan. The rope runs on far past the strands, because a longer loan can cost more overall, even at a lower rate.

What gets twisted together

In Moneysmart’s words, debt consolidation means rolling several debts into one new loan and then making one regular repayment to one lender. Refinancing means replacing or extending an existing loan with a new one, with the same lender or a different one, and the two can be used together.

One rope is simpler to hold than five strands. The National Debt Helpline adds the other side: rolling every debt into one loan can leave you paying more under the new arrangement than you would have on the original loans. What debt consolidation is, in full.

Close-up of a weathered grey-green rope made of strands twisted around one another, against a blurred green background.
Strands laid into one rope. Photo by balesstudio on Unsplash

Four strands that have to hold

Moneysmart sets out four conditions under which consolidating or refinancing may help:

  • You pay less overall. The new loan’s interest rate and fees come in below those of the current debts.
  • There is a clear end date. The new loan term is no longer than the current debts.
  • The repayments are affordable. The new repayment fits the budget and can keep being paid.
  • The old credit stops. Old credit cards and loans are closed or reduced, and no new debt is taken on.

If some of these are not true, Moneysmart says, consolidation can make a situation worse, not better.

One strand carries more weight than it looks. Turning unsecured debts, such as credit cards, into one loan secured against a home or car means that asset may be at risk: if the new loan is not repaid, the lender can sell it to get back the money it lent. Where a home is owned jointly, the National Debt Helpline notes, you may have to pay the debt if the other owner cannot.

The longer rope

Moneysmart’s own example takes a $20,000 debt and refinances it at lower rates over longer terms. Each step down in rate lowers the repayment, and each step out in time raises the total.

10% over 5 years · $424.94 a month · $25,496 in total

8% over 10 years · $242.66 a month · $29,119 in total

6% over 15 years · $168.77 a month · $30,379 in total

An illustration, not market rates. The rates, terms and totals are Moneysmart’s example; the monthly repayments are this guide’s arithmetic, assuming equal monthly repayments and no fees, which gives Moneysmart’s totals to the dollar. Each rope’s length is the term; its thickness is the monthly repayment.

How a longer loan can cost more, worked through.

Six guides

  1. What debt consolidation is

    Several debts rolled into one loan: what Moneysmart and the National Debt Helpline say it is, when it can help and where it goes wrong.

  2. How a longer loan can cost more

    Moneysmart’s own example, worked through: a lower rate over a longer term, smaller repayments and a larger total.

  3. Debt management and credit repair firms

    What these fee-charging firms offer, the licence ASIC requires, and the free services Moneysmart sets beside them.

  4. Asking a lender for hardship help

    Your rights under credit law, step by step: the hardship request, the lender’s reply, and AFCA if you cannot agree.

  5. Free financial counselling

    What a financial counsellor can and cannot do, and how to reach the National Debt Helpline.

  6. Your credit report, and fixing errors

    What is on it, how to get it free, what can be corrected and the time limits, from the OAIC and Moneysmart.

Free help, before any fee

Moneysmart describes financial counselling as a free, confidential service run by not-for-profit community organisations. It also says financial counselling is free, that you never need to pay, and that a business charging a fee for it is a debt consolidation or refinancing company, not a financial counsellor.

National Debt Helpline

1800 007 007

Open Monday to Friday, 9.30 am to 4.30 pm. Live chat on weekdays, 9.00 am to 8.00 pm. Its contact page also explains how to reach it through an interpreter or the National Relay Service.

The Helpline describes itself as a not-for-profit service that is not a lender. Moneysmart says that when you call, you are transferred to the service in your state. What a financial counsellor can and cannot do.

About this guide

consolidate.au is a guide published by Dotto. It explains debt consolidation in plain language, from ASIC’s Moneysmart, ASIC, the Australian Financial Complaints Authority (AFCA), the Office of the Australian Information Commissioner (OAIC) and the National Debt Helpline. Where this guide and a source differ, the source is right.

It names regulators, the complaints body and free services only. It names no lender, broker, debt management firm or credit repair business, and nothing on these pages is a comparison or a ranking of them.