Credit card debt at 20%+ p.a. costs more than most people realise. If you're carrying a balance across two or three cards, possibly with a personal loan or buy now pay later account thrown in, the combined interest and fees can quietly pile up month after month.
A debt consolidation personal loan rolls all of that into one fixed repayment at (ideally) a lower rate. It can simplify your finances and save you money. But it doesn't always work out that way, and the devil is in the detail. Here's how to figure out whether it actually makes sense for your situation before you apply.
What Is a Debt Consolidation Personal Loan?
A debt consolidation personal loan is a standard personal loan used specifically to pay out multiple existing debts. You borrow enough to cover what you owe across your various accounts, pay them off, and then repay the single loan over a fixed term.
It's one of the most common reasons Australians take out personal loans. In fact, debt consolidation accounts for around 29% of all personal loan applications in Australia, with the average amount borrowed sitting at $15,302. The types of debt it can cover include:
- Credit card balances
- Store cards
- Buy now pay later accounts
- Existing personal loans
- Car loan debt
The goal is simple: one repayment, one interest rate, one due date. Whether it saves you money depends on what rate you can get.
When Does a Debt Consolidation Personal Loan Actually Save You Money?
Here's the key test. If the interest rate on your new loan is lower than the average rate across your current debts, and you don't extend the total repayment term dramatically, consolidation will save you money.
The numbers make this easier to see. The average standard credit card rate in Australia is 20.99% p.a., according to the Reserve Bank of Australia. The average unsecured personal loan rate is around 13.87% p.a., with well-qualified borrowers accessing rates from around 9.79% p.a. That gap matters.
Here's a worked example:
| Debt | Balance | Interest Rate | Monthly Repayment |
|---|---|---|---|
| Credit card 1 | $6,000 | 20.99% p.a. | $180 |
| Credit card 2 | $4,500 | 19.99% p.a. | $135 |
| Personal loan | $5,000 | 15% p.a. | $173 |
| Total (current) | $15,500 | avg ~18.7% | $488 |
| Consolidation loan | $15,500 | 13% p.a. over 3 yrs | $521 |
Monthly repayments are slightly higher in this example because the loan is being repaid on a structured schedule rather than minimum payments. But the total interest paid over 3 years drops significantly compared to making minimum payments on the cards indefinitely. You also get a clear end date, which credit cards don't give you.
Use the Loans123 loan repayment calculator to run your own numbers before you apply.
What to Watch Out for With a Credit Card Consolidation Loan
Consolidation isn't a fix-all. There are a few traps worth knowing about before you go ahead.
A longer term can cost you more overall. Spreading $15,000 over 7 years at 13% p.a. produces lower monthly repayments than over 3 years, but you'll pay considerably more in total interest. Shorter terms cost more per month but less overall.
Running up the cards again. This is the most common mistake. You consolidate, the credit cards show a zero balance, and within a year they're carrying debt again. Now you have the consolidation loan and new card debt. If you consolidate, close or significantly reduce the limits on the cards you pay out.
Early payout fees on existing loans. Some personal loans charge a break fee if you repay early. Before you consolidate, check the payout figure on any existing loans, not just the outstanding balance. Factor that cost into your savings calculation.
Establishment fees on the new loan. Most personal loans charge an upfront fee of $150 to $600. That eats into the savings, so it's worth checking the total cost of the new loan against what you'd pay staying put. If you ever have concerns about how a lender has handled your application or loan contract, AFCA provides free, independent dispute resolution for consumers.
For support with managing existing debt, our debt management solutions page covers options beyond consolidation too.
How to Do a Personal Loan Comparison Before You Apply
Not all personal loans are created equal. Here's what to look at when you're comparing options.
Advertised rate vs comparison rate. The advertised rate is the base interest rate. The comparison rate rolls in most standard fees and gives you a better picture of the true annual cost. It's calculated on a standard $30,000 unsecured loan over 5 years. For a plain-language breakdown of how debt consolidation and refinancing works, MoneySmart's debt consolidation guide is worth a read before you start comparing.
Fixed vs variable. Fixed rates lock in your repayment for the life of the loan, which makes budgeting straightforward. Variable rates can move up or down with the market. For debt consolidation, most borrowers prefer fixed, since predictability is part of the point.
Early repayment flexibility. If your financial situation improves and you want to pay the loan off sooner, some lenders charge exit fees. Look for loans that allow extra repayments without penalty.
What not to do: apply to multiple lenders at once. Each formal credit application leaves an enquiry on your file. Several in a short period signals financial stress to lenders and can lower your credit score, making subsequent approvals harder or more expensive. Use our loan types FAQs to get across the basics before applying anywhere.
Working with a broker solves this neatly. One application, access to 30+ lenders, and your broker filters options based on what you're actually likely to qualify for.
Can You Refinance a Personal Loan Into a Consolidation Loan?
Yes, and it's quite common. If you took out a personal loan 18 months ago with a higher rate, and your credit profile has improved since then, a refinance personal loan can reduce your rate and fold in other debts at the same time.
Lenders assessing a refinance will typically look at:
- Your current credit score and repayment history on the existing loan
- Your income and employment status
- Total existing debt obligations
- Whether the new loan genuinely improves your financial position
The personal loan options we compare cover both new consolidation loans and refinancing of existing debt. It's worth getting a quote even if your current loan still has a few years to run. The savings can outweigh the break costs, depending on the rate difference and how much is left to pay.
Key Takeaways
- A debt consolidation personal loan combines multiple debts into one fixed repayment, typically at a lower interest rate than credit cards (which average 20.99% p.a. in Australia).
- The maths only works in your favour if the new rate is meaningfully lower and you don't stretch the term out too far.
- Watch out for early payout fees on existing loans, establishment fees on the new one, and the temptation to spend on cleared cards again.
- Compare the advertised rate and the comparison rate, not just the headline number.
- Applying through a broker protects your credit file and gives you access to multiple lenders in a single application.
Ready to see what you could save? Call Loans123 on 1800 079 147 or get in touch with our team and our brokers will do the legwork.
Loans123 is an Australian Credit Licensed finance broker (ACL 512846). This article is general information only and does not constitute financial advice. Please consider your own circumstances and seek independent advice if needed before applying for any finance product.
Written by
Loans123 Team
The Loans123 team has over 10 years of experience helping Australians find the right finance solutions. We compare 30+ lenders to get you the best deal.
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