A debt consolidation loan is a new loan that pays out several existing debts, like credit cards, personal loans and pay later (BNPL) accounts, so you make one repayment to one lender. It may come with a lower interest rate, but a longer term can mean paying more overall.
This guide explains how debt consolidation loans work, what they cost over three, five and seven years, and the risks to weigh up. It also covers hardship options and free help to try first if you're already falling behind.
How debt consolidation loans work
The loan replaces several balances with one. Some people call them consol loans or simply consolidation loans, and the idea is the same whichever name you use.
Most consolidations follow the same four steps, whether the lender pays your creditors directly or pays the money to you.
- List every debt you want to include and ask each provider for a payout figure, not just the current balance.
- Apply for one loan that covers the total, including any break or closing fees.
- The money pays out each debt in full, and those accounts are closed or reduced.
- You make one regular repayment on the new loan until it is paid off.
Credit cards, store cards, BNPL accounts, personal loans and car loans can usually be included. A lender may decline to pay out some types of debt, so check which ones it accepts before you apply.
Type of loan | How it works |
|---|---|
Unsecured | No asset backs the loan; the lender relies on your income and credit history |
Secured | A car or other asset backs the loan, and the lender can take it if you stop repaying |
Once the cards are paid out, close them or cut the limits right down. Otherwise it is easy to end up with the new loan plus fresh card debt, which leaves you worse off than before.
What a consolidation loan really costs
Whether consolidating costs less than your current debts depends on the rate, the fees and the term. The monthly repayment on its own tells you very little.
The table shows one $30,000 loan over three terms at the same rate. Notice how a lower repayment comes with a much bigger interest bill.
$30,000 over | Monthly repayment | Total repaid (interest) |
|---|---|---|
3 years | $996 | $35,871 ($5,871) |
5 years | $667 | $40,040 ($10,040) |
7 years | $530 | $44,485 ($14,485) |
Source: Loans123 calculations. A hypothetical illustration at 12% a year, not a Loans123 rate or offer. Figures are approximate and exclude fees and charges.
Stretching the same debt from three years to seven cuts the repayment by about $466 a month. It also adds roughly $8,600 in interest, which is the trade-off many people miss.
Fees change the picture too. Add the new loan's establishment and ongoing fees, plus any break fees on the debts you pay out, before you compare.
Put the totals for your current debts and the new loan side by side: total repayments, total interest, fees and the loan term. The Loans123 loan calculator can help you test other amounts and terms, as a guide only.
Risks to weigh up
A consolidation loan simplifies your repayments, but it doesn't make the debt smaller. The National Debt Helpline warns that the biggest drawback is the extra time it tends to take to clear the debt.
These are the risks worth checking before you sign anything.
- A longer term can mean more interest overall, even at a lower rate.
- Turning unsecured card debt into a loan secured against a car or home puts that asset at risk if things go wrong.
- Paid-off cards left open can fill up again, leaving two lots of debt.
- With one lender holding all the debt, you have only one lender to negotiate with if you fall behind.
- Consolidation offers in social media ads or unsolicited emails can be scams, so never respond to them.
Joint debt for couples
Couples sometimes roll both partners' debts into a joint debt consolidation loan. That changes who owes what, because a debt that was only in one name becomes shared.
According to Legal Aid WA, a co-borrower is legally responsible for repaying the whole debt if the other borrower cannot make the repayments. If the relationship ends or one partner stops paying, the other can be left with all of it.
If you're already behind on repayments
A new loan is rarely the answer once repayments are already being missed. The National Debt Helpline notes that people already struggling with their repayments usually can't get a consolidation loan.
If your loan is for personal purposes, credit law gives you the right to ask your lender for a hardship arrangement, such as lower repayments for a while. You contact its hardship department and explain that you can't afford your repayments; this is called a hardship notice.
The National Debt Helpline explains that your first hardship notice in any three months stops further enforcement or legal action until the lender replies, unless it has a court judgment. The lender then has 21 to 30 days to reply, depending on whether it asks you for more information.
If the lender says no, it must give you reasons and tell you about your right to have the decision reviewed by the Australian Financial Complaints Authority (AFCA). Keep paying what you can while you wait for an answer.
A hardship arrangement does show on your credit report, but for a shorter time than missed payments. Hardship information stays for one year, while missed repayments stay for two years, according to the privacy regulator, the OAIC.
For free help, call the National Debt Helpline on 1800 007 007, weekdays from 9:30am to 4:30pm, to speak with a financial counsellor. If debt stress is affecting how you feel, Lifeline is on 13 11 14.
Other options to try first
A consolidation loan is one route out of several, and often not the first one to try. This table sets the main options side by side.
Option | When it may suit and what to check |
|---|---|
Hardship arrangement | May suit: A short-term setback such as illness or job loss. |
Payment plans and priority debts | May suit: Several bills where some matter more than others. |
Balance transfer card | May suit: Card debt you can clear within the promotional period. |
Refinancing one loan | May suit: One large debt at a high rate. |
Free financial counselling | May suit: Anyone unsure where to start. |
Debt agreement | May suit: A last resort, after advice. |
Debt consolidation loan | May suit: Several debts, a steady income and a lower total cost. |
Source: National Debt Helpline, OAIC and ASIC, October 2026.
Balance transfer cards need care: in its review of credit card lending, ASIC found most lenders offered promotional periods of 12, 18 or 24 months. After that, the balance reverts to a higher rate, in most cases the standard purchase rate.
The National Debt Helpline suggests working out your priority debts and always paying those first, then dealing with the rest. Our step-by-step plan for getting out of debt walks through that process.
Debt agreements are a different thing altogether. A debt agreement is a formal insolvency agreement under the Bankruptcy Act, and the National Debt Helpline describes it as a last resort.
Some offers sold as debt consolidation are actually debt agreements. They tend to promise a single payment or talk up a government scheme, so read the paperwork closely.
The National Debt Helpline says to speak to a free financial counsellor before you consider one. It also points to the Australian Financial Security Authority (AFSA) for the full eligibility criteria.
Be wary of companies that charge to manage or negotiate your debts, and check them before you pay anything. As ASIC explains, paid debt management services have needed an Australian credit licence that covers this work since 1 July 2021.
What lenders look at
If a consolidation loan still looks right after weighing the alternatives, it helps to know how lenders for debt consolidation loans assess you. They look at your income and expenses to see whether the new repayment fits, and at your credit report.
Most lenders ask for a similar set of documents.
What lenders ask for | Why |
|---|---|
List of debts and payout figures | The exact amount needed to clear each one |
Proof of income | Recent payslips, or tax returns if you are self-employed |
Bank statements | Your income and spending over recent months |
Identification | A driver licence or passport |
Across a panel of lenders, the same few things tend to hold applications up. None of them is unusual, and most can be sorted out before you apply.
- A debt the lender won't pay out is included in the request.
- Payout figures are missing or out of date.
- Recent missed repayments or defaults appear on the credit report.
- Several credit applications have been made in a short time.
- The new repayment leaves too little room in the budget.
Applying is itself recorded: the OAIC explains that the request for your credit report is listed as a credit enquiry. Each application adds another enquiry, which is one reason to compare options before applying to several lenders.
Every lender weighs these differently, so the same application can get different answers. If missed repayments or defaults are already on your file, our page on options when your credit history is patchy explains how that is handled.
If most of your debt is on credit cards, our guide to using a personal loan to consolidate goes deeper on that comparison. It covers break fees and comparison rates in more detail.
Consolidation vs refinancing
The two terms often get mixed up. Consolidation combines several debts into one new loan, while refinancing replaces a single loan with a new one, usually to change the rate or terms.
Both are worth judging on total cost rather than the repayment. Our explainer on how refinancing works covers the single-loan case.
Frequently asked questions
Do debt consolidation loans hurt your credit score?
Applying records a credit enquiry on your credit report, and lenders can report whether each repayment is made on time. Missed repayments on the new loan stay on your report for two years, the same as on any other loan.
How much is the repayment on a $50,000 consolidation loan?
At a hypothetical 12 per cent a year over five years, the repayment is about $1,112 a month, with about $16,733 in interest before fees. Your actual rate, fees and term will change these figures, so compare total repayments rather than the monthly amount.
Can you get a debt consolidation loan with bad credit?
Some lenders may consider an application from someone with a poor credit history, but eligibility, rates and terms vary. Missed repayments or defaults on your credit report can affect how a lender assesses the application.
Can couples take out a joint debt consolidation loan?
Yes, two people can apply for a consolidation loan together. Each borrower can be responsible for the whole debt if the other can't pay, so think carefully before taking on a partner's debts.
Is debt consolidation the same as a debt agreement?
No. A debt agreement is a formal insolvency agreement under the Bankruptcy Act and an act of bankruptcy, so speak to a free financial counsellor on 1800 007 007 before considering one.
Where a broker fits in
If a consolidation loan still makes sense after the alternatives, the next step is to see the total cost from more than one lender. Rates, fees and the debts each lender will pay out can differ a lot.
Loans123 is a Perth finance broker that compares more than 30 lenders. Our page on debt consolidation in Perth explains how it works.
This article is general information only and does not take your personal circumstances into account. It is not financial advice. Consider whether a product suits you and read the loan terms before you apply.
Ready to see what you could borrow?
Loans123 compares more than 30 lenders from our Victoria Park office in Perth. Read more about our Debt Consolidation and Bad Credit Debt Consolidation, or get a quote now.
Checking your options has no impact on your credit score.
Written by
Trent Cray
Finance Specialist, Loans 123
Trent is a Finance Specialist at Loans 123 in Victoria Park, Perth. He helps customers compare more than 30 lenders to find car, personal and business finance that suits their situation.
Meet the Loans 123 team
