Debt consolidation is among the leading uses cited for personal loan applications in Australia. Through Savvy in 2025, it was the third-most common personal loan purpose, behind car and recreational vehicle expenses, and was the second-highest in terms of average loan amount ($31,519).
It’s easy to see why, with the Australian Securities and Investments Commission (ASIC) reporting that 47% of adults in debt had struggled with repayments over the previous 12 months.
If you’ve found yourself in a position where your bills, credit cards and other payments are becoming more difficult to manage, it’s worth looking into how a debt consolidation loan could simplify things for you.
What is a debt consolidation loan?
A debt consolidation loan is a personal loan that you can use to cover multiple outstanding debts at once. The process is simple: you borrow enough to cover one or more of your debts, use the funds to pay them off immediately and repay your lender on a weekly, fortnightly or monthly basis until the full amount is cleared. Loan terms range from one to seven years in most cases.
These loans start from as little as $5,000 and can reach as high as $75,000 when unsecured, though some lenders will cap them at $50,000. With security (such as your car), you could potentially borrow as much as $100,000, though your actual borrowing power will depend on things like your income, expenses, credit score, the value of the asset securing the loan and more.
Debt consolidation loan interest rates
Unsecured personal loan rates correct as of 27 March 2026.
Why you might consolidate your debts with a personal loan
Here are some situations where a debt consolidation loan might come in handy for you:
- You’re paying off high-interest debts: if you have one or more credit card balances that you’re trying to get on top of, moving them under a debt consolidation loan will usually allow you to repay your debt at a lower interest rate.
- You’re struggling to manage different payment terms: you might have a credit card due one week, a personal loan the next and another credit card a few days after that. A debt consolidation loan means you only have to worry about a single payment.
- You want a bit more breathing room: if you’ve fallen behind with payments and your creditors are breathing down your neck, taking out a debt consolidation loan will clear your plate with them and allow you to start fresh with your new lender.
- You want more money in your monthly budget: as we’ll get into a little later on, consolidating your debts means you’ll be paying less per month, especially if you stretch them out over a longer loan term.
What can I use a debt consolidation loan for?
There’s a range of expenses that could be covered by a debt consolidation loan. The most common ones are:
- Credit card debt
- Household bills
- Payday loans
- Other outstanding personal or car loans
- Household bills, including those that are overdue
Just about any expense can be paid off with a debt consolidation loan, though it’s worth considering whether you’re better off paying it off as normal (if you’re in a position to do so). For example, a $200 overdue bill bundled into a loan and stretched out over five years at a rate of 10.00% p.a. would ultimately cost you almost $55 in interest.
Case study: how much you could save with a debt consolidation loan
Clare is looking to consolidate her several outstanding debts into one payment. At the moment, she owes $10,000 on a four-year car loan at 9.50% p.a., $7,500 on another personal loan over three years at 11.00% p.a. and two credit card debts: $5,000 at 21.50% p.a. and $2,500 at 23.00% p.a.
The following tables show what her repayments look like each month with all four debts:
| Debt type | Amount owed | Interest rate | Term | Monthly payment | Total cost |
|---|---|---|---|---|---|
| Car loan | $10,000 | 9.50% p.a. | Four years | $252 | $12,060 |
| Personal loan | $7,500 | 12.00% p.a. | Three years | $250 | $8,968 |
| Credit card | $5,000 | 21.50% p.a. | Four years* | $155 | $7,322 |
| Credit card | $2,500 | 23.00% p.a. | Three years* | $95 | $3,418 |
| Total | $25,000 | N/A | Four years | $741 | $31,768 |
| *Credit card debts come without a set repayment schedule. These calculations assume Clare pays enough each month to have the $5,000 debt cleared in four years and the $2,500 debt cleared in three years. Following the minimum payments for these debts, each would take over 30 years to be fully repaid. | |||||
Clare looks around for quotes for debt consolidation loans and finds one with an interest rate of 9.50% p.a. She calculates that a loan to cover her debts repaid over four years would look like this:
| Debt type | Amount owed | Interest rate | Term | Monthly payment | Total cost |
|---|---|---|---|---|---|
| Debt consolidation loan | $25,000 | 10.00% p.a. | Four years | $634 | $30,435 |
By consolidating her debts, Clare would save over $1,300 overall and trim the total monthly cost by more than $100 in the process.
If you’re looking to find out how much your debt consolidation loan will cost overall, you can use a personal loan repayment calculator to see what different loan amounts and sizes will set you back.
How to apply for a debt consolidation loan with Savvy
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Work out how much you need to borrow
Review your debts to work out which ones need consolidating and which don’t, so you can get an idea of how much you need to borrow.
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Complete our online form
Share details about your income and debts, as well as the loan amount you’re after, in addition to details about yourself and your financial situation.
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Send through your documents
Submit all the required documents to us so we can verify your profile and finances.
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Speak with your Savvy broker
Your broker will give you a call to discuss your situation and talk you through the options available to you as a borrower.
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Have your application prepped and submitted
If you’re happy with everything, your broker will move ahead and submit your application to your lender for formal assessment.
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Get formal approval and sign off
Once you receive formal approval, all you’ll have to do is sign off on everything and the funds will be sent to your nominated account.
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Pay off your debts
Once you have your funds available, you can go ahead and clear your outstanding debts straight away.
Why apply for a personal loan with Savvy?
Pros and cons of debt consolidation loans
Pros
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May help you save overall
As mentioned, taking out a debt consolidation loan can allow you to reduce the amount you’d otherwise pay, especially if you have outstanding high-interest debts.
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One payment instead of many
Rather than having to manage different debts on a range of cycles, you’ll only have a single weekly, fortnightly or monthly payment coming out of your account.
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Come with a fixed repayment structure
If your debts aren’t on a fixed payment term, such as credit cards, debt consolidation loans provide you with a clear structure for your instalments.
Cons
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May cost more if you choose a longer loan term
Though they can save you money in the right situations, stretching out smaller, shorter-term debts or those with low or no interest could mean you end up paying more.
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Loan fees may set you back
It isn’t just interest you’ll need to consider when setting up your debt consolidation loan, but fees, too. These are likely to add hundreds on top of your overall outlay.
Debt consolidation vs debt agreement
Another solution for dealing with significant debt is a debt agreement (also known as a Part IX debt agreement). However, this is very different to a debt consolidation loan. A debt agreement is a legal document designed for those who are unable to repay their debts in full to creditors, such as if they’ve become insolvent. It’s essentially an alternative to becoming bankrupt.
Under a debt agreement, you’ll arrange to pay back a manageable portion of your debts to a debt agreement administrator, who then disburses the funds to your creditors. What’s most important to note about this is that it’ll have a significant negative impact on your credit file and will likely have an impact on your ability to access credit in the future.
It’ll stay on your credit file for at least five years, as well as on the National Personal Insolvency Index (NPII). However, personal loan approval may still be possible under a Part IX debt agreement.
You should only seek to enter a debt agreement if it’s absolutely necessary and you’re unable to pay off your debt in any other way. If you’re unsure whether to apply for a debt consolidation loan or seek to enter a debt agreement, speak with your accountant or a financial counsellor.
Top tips for securing the right debt consolidation loan
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Look for the lowest rates available
Of course, the easiest way to compare loans is by finding the lowest interest rate available for your situation. Your Savvy broker will do just that when you apply with us.
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Prioritise loans with repayment flexibility
Leaving the option open to repay your debt ahead of schedule with no penalties for doing so could help you save even more. Most personal loans come without early termination fees.
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Consider whether loan security is right for you
Opting for a secured personal loan will likely mean that you’re reducing your interest rate and increasing your borrowing power, but your secured asset will be lost if you default.
Debt consolidation loan alternatives
There are a few options outside of taking out a personal loan when it comes to consolidating your debts. These include:
Utilising a balance transfer
A balance transfer card allows you to move your debts from your high-interest credit card (or cards) over to one with low or no interest. This low-interest period is typically available for a limited time, often between six months and two years, and allows you to pay off your debts without accruing massive amounts of interest.
This can be a highly effective way of paying off credit card debt if you’re able to clear them within this timeframe, given just how steep their interest rates usually are. However, they aren’t available for other forms of debt and, if you’re unable to clear your debt within the low-interest period, will slug you with high rates.
Moving your debts into your mortgage
The other main option is to move debts into your mortgage, either by taking money out of an offset account or redrawing on your home loan. In terms of budget impact, this is by far the smallest, but you’ll find that the interest you pay overall is much greater in most cases.
Using our previous example, adding Clare’s $25,000 debt to a $500,000, 25-year home loan at 5.50% p.a. only increases her monthly payment by around $150, which saves close to $600 per month. However, it’ll increase the amount she spends on her home loan by just over $46,000, meaning she’s over $14,000 worse off than she would be if she didn’t consolidate her debts at all.
| Debt type | Amount owed | Interest rate/s | Term/s | Monthly payment/s | Total cost |
|---|---|---|---|---|---|
| Unconsolidated | $25,000 | 9.50% p.a. to 23.00% p.a. | 3 to 4 years | $741 | $31,768 |
| Consolidation loan | $25,000 | 10.00% p.a. | 4 years | $634 | $30,435 |
| Home loan | $25,000 | 5.50% p.a. | 25 years | $154 | $46,057 |
Negotiating a payment plan or debt settlement
You may also be able to reach out to your creditors directly and discuss options for repaying your debts if you’re experiencing financial hardship. This can come as part of a specialised repayment plan or by offering a revised debt settlement which is less than your current balance.
These steps may not always work, but they can be an effective starting point if you’re stressed about your finances. You can also engage the services of a financial advisor or planner to help you put together a roadmap out of your current debt, who may be able to help in creditor negotiations.
Services such as the National Debt Helpline, Way Forward and Mob Strong Debt Help for Aboriginal people are free and easy to access, while Moneysmart has a database of financial counsellors across the country.
Entering a Part IX debt agreement
The final step you should take is considering a Part IX debt agreement. This is a legally binding agreement between you and your creditors that allows you to pay a reduced portion of your debt over a set period. It allows you to clear some of the balance without needing to go bankrupt.
While this can alleviate stress and potentially reduce your debt significantly, it’ll have massive ramifications for your credit score. If you’re planning to apply for finance in the near future, having a Part IX debt agreement on your file will make approval much more complex (but not impossible).
Is a debt consolidation loan right for me?
Whether a debt consolidation loan is the best move for you depends entirely on your personal situation. Here are some cases where one option may be better than the others:
- If you’re balancing multiple high-interest debts and have access to a lower rate on a debt consolidation loan, taking one out could be beneficial for you.
- If your debts are unstructured and you’re struggling to keep up with them, a loan comes with fixed repayments over a set period that are simpler to budget around.
- If you’re only dealing with credit card debts and are able to transfer and pay off the full amount on a balance transfer card, this might be the most cost-effective move.
- If your borrowing power is below your current debt balance, you might look at payment plans or a combination of a loan and other debt-tackling methods.
