How to simplify your debt: A debt consolidation guide

Managing debt is a common part of the Australian financial landscape, but when you’re making multiple repayments across different products, it can be difficult to stay on top of it. With credit cards, personal loans and car financing all carrying their own interest rates, fees and due dates, it’s easy to lose sight of the total cost.

Juggling these obligations is often expensive, and it can add unnecessary stress to the household budget. With debt consolidation, you can combine multiple debts into a single loan to manage one repayment rather than several. Depending on the debts you’re consolidating and the terms of the new loan, it may also help to reduce the overall cost of your debt.

This guide explains how debt consolidation works in the Australian market, the potential benefits for your cash flow and the steps you can take when you’re ready to take back control of your finances.

What is debt consolidation and how does it work?

Debt consolidation involves combining multiple debts into a single loan. The new loan is used to pay off your existing debts, such as credit cards and personal loans, leaving you with one balance to repay.

Instead of managing several repayments with different due dates, interest rates and fees, you’ll have one repayment schedule and one interest rate. The exact interest rate and repayment amount will vary depending on the loan you take out and the types of debt you’re consolidating.

There are two main ways it can help simplify debt:

Lower overall costs: If your new loan has a lower interest rate compared to your current debts, it may reduce the total amount of interest you pay. It could also help you avoid paying multiple account fees across various credit products.

Simpler repayments: A single loan means there’s only one repayment to track, which makes budgeting easier and reduces the risk of missed due dates.

Personal loan vs balance transfer: Which option works better?

When exploring how to consolidate debt, you will usually come across two options: a debt consolidation personal loan or a balance transfer credit card. The best route to simplify your debt will depend on the type of debt you have, how quickly you can repay it and how much certainty you want in your repayments. 

Debt consolidation personal loan

A debt consolidation personal loan typically comes with predictable repayments spread over an agreed term. This provides certainty and makes budgeting more straightforward. The loan term you choose affects both your monthly repayment and the total cost. Longer terms will reduce the monthly repayment, but increase the total interest paid over time. Shorter terms increase the monthly repayment, but reduce the overall paid interest.

Balance transfer credit card

A balance transfer credit card often promotes a low or 0% interest rate for a limited introductory period. Once that period ends, interest rates usually revert to a much higher level. This option may be suitable for you if you can repay the full balance within the promotional period (for example, six months).

A personal loan may be the best fit if you want repayments mapped out over a set period. However, if you can clear the debt before the promotional rate ends, a balance transfer may be preferable. Before deciding, compare interest rates, fees and what applies after the introductory period ends.

When should you consider consolidating debt?

Debt consolidation may be worth considering if you want to simplify debt and make repayments easier to manage. It’s most commonly used when you:

have multiple debts (credit cards and personal loans)

are finding it hard to track different repayment dates and amounts

want a more structured repayment plan

are paying high interest across several accounts

want to reduce monthly repayment pressure (depending on the loan term and interest rate)

Before proceeding, compare the total cost of the new loan, including interest rates, fees and the repayment term, to better understand both the benefits and the potential risks.

At MONEYME, you can check your personalised rate and repayments before you apply, with no impact to your credit score.

The main benefits of debt consolidation

When used correctly, debt consolidation offers several advantages:

a single repayment that is easier to track and budget for

lower interest rates compared to credit cards and other high-interest debts

reduced financial stress thanks to predictable repayments

access to personalised rates, digital applications, and flexible loan features

The right debt consolidation loan can make it easier to stay organised and focused on paying down your debt.

Potential risks or drawbacks to be aware of

Debt consolidation isn’t always the right route for everyone. If you opt for a longer loan term in order to secure the lowest monthly repayment, you may end up paying more interest than you’re comfortable with. Be sure to check the total cost of the loan before accepting. 

Because a credit check is required, you may see a short-term dip in your credit score after you apply for a debt consolidation loan. As you stick to the repayments, it usually rebuilds.

Debt consolidation works best when paired with a long-term plan. Sticking to repayments, budgeting carefully, and avoiding new borrowing are key to success.

Getting started with debt consolidation: How to calculate your current debt burden

Before you get started with debt consolidation, it’s important to understand your full financial position. This gives you a clear view of what you owe, what you’re paying each month and where most of your interest costs are coming from.

To do this, start by listing each debt and noting the:

outstanding balance

interest rate

minimum repayment

repayment due date

From there, add up your total minimum repayments to estimate your current monthly outgoings and overall debt level. Head to the MONEYME debt consolidation calculator if you want to compare your current repayments against a single consolidated loan.

It can also be beneficial to check your credit score at this stage. Understanding your credit profile can help you prepare a stronger application and plan for the future. You can check your credit score for free using the MONEYME App

Step-by-step guide to applying for a debt consolidation loan in Australia

Here’s a step-by-step guide on how to apply for a debt consolidation loan.

Step 1: Compare loan providers & rates

Research lenders and compare interest rates, loan terms, and fees. Make sure you consider the total cost of the loan, not just the headline rate. When comparing lenders, be aware that some banks and lenders use hard credit checks to provide an exact rate, which could affect your credit score.

At MONEYME, you can see your exact rate without any impact on your credit score. Simply get a quote online in 90 seconds to see your personalised rate, risk-free. 

When choosing a lender, look beyond the interest rates and fees. Customer service matters, especially when your loan is active. Check independent review sites to compare experiences. MONEYME is one of Australia’s highest-rated digital lenders, with strong reviews available to see online.

Step 2: Check your eligibility and personalised rate

Each lender has their own eligibility criteria and offers different interest rates. When comparing your options, it’s useful to check this on their websites first. Some lenders, like MONEYME, offer an obligation-free quote that lets you check your personalised rate and repayments without impacting your credit score. 

At MONEYME, you can start by getting a quote in 90 seconds here.

Step 3: Apply and transfer your balances

Once approved, use your loan funds to pay off your existing debts. In some cases, your lender may pay out some or all of your existing debts directly. Either way, this completes the consolidation process and leaves you with one active loan.

Step 4: Stick to a repayment plan

Set up automatic repayments or reminders to ensure you stay on track. Many lenders also offer apps that allow you to monitor your balance and repayment progress in real time.

Take control of your debt with confidence

If you are looking to simplify debt, a debt consolidation loan can help you regain control through one manageable repayment, potential interest savings, and reduced financial stress.

If you are ready to take the next step, explore the MONEYME debt consolidation loan to see whether our rates and repayments suit your needs. You can get a personalised quote online in 90 seconds, without impacting your credit score.

As an award-winning B-Corp lender with thousands of five-star reviews, MONEYME is committed to helping Australians manage their finances with confidence.