Written by A debt consolidation loan is simply a personal loan used to clear one or more outstanding debts. There are several key reasons why someone would look to consolidate their debts into a personal loan:
- To ensure any high-interest or overdue debts are cleared, saving you from potentially paying even more and ending up in a debt spiral.
- To make your outstanding debts more comfortable to manage each month by spacing them out over a longer loan term.
- To make managing multiple debts (such as those on different schedules) more convenient by combining them into one payment.
If you're looking to lump all your debts into a single, manageable payment, you can apply for a loan with Savvy today! We're partnered with a range of trusted Australian lenders and, with the help of our experienced brokers, will find the best available deal fro your needs!
Why compare personal loans with Savvy?
There's no need to worry about forking out to compare offers. Our service is free, so you can come back whenever you like.
You don't need to worry about sifting through documents and visiting the post office, as they can all be submitted online.
We've partnered with personal loan companies you can trust to ensure your comparison is a high-quality one.
What debts can I consolidate with a personal loan?
There’s a wide range of debts that can be covered by a single personal loan. Some common uses for these loans include:
- Credit card debts
- Payday loans
- One or more other personal or car loans
- Store card or credit balances
- Overdue rent or bills
Because personal loans can be used however you like, you can consolidate as many outstanding costs as you can comfortably manage to repay (provided you’re approved for the amount you’re looking for).
How much can I save with a debt consolidation loan?
It's important to understand how consolidating your debts can save you money across your term. Take the following example:
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 18.50% p.a. and $2,500 at 20.00% p.a.
The following tables show what her repayments look like each month with all four debts, as well as what she’d pay if she consolidated them into a four-year, 8.50% p.a. loan:
| 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 | 18.50% p.a. | Four years* | $146 | $7,003 |
| Credit card | $2,500 | 20.00% p.a. | Three years* | $93 | $3,269 |
| Total: | $25,000 | N/A | Four years | $741 | $31,300 |
*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.
| Debt type | Amount owed | Interest rate | Term | Monthly payment | Total cost |
|---|---|---|---|---|---|
| Debt consolidation loan | $25,000 | 8.50% p.a. | Four years | $617 | $29,578 |
As you can see, by consolidating her debts, Clare would save over $1,700 overall and trim down the total monthly cost by more than $120 in the process.
The types of Personal Loans
Personal loan repayment calculator
It’s important to have an idea of what different loans might cost you overall before you apply. Fortunately, Savvy’s personal loan repayment calculator is simple to use and tells you everything you need to know about how much different offers might add up to overall based on a variety of different factors.
How should I compare personal loans for debt consolidation?
Interest rates
Securing the best available rate is crucial, as the lower your rate, the less you’ll pay overall. Even small differences could save much-needed funds. For instance, a $30,000 personal loan repaid monthly over five years at 8.50% p.a. would cost you over $6,900 in interest. However, even locking in a rate of 7.50% p.a. would reduce your interest bill by over $850.
Fees
In addition to interest, fees are also important to think about. Even seemingly low fees can mount up over time, so it’s worth comparing them. The main charges to consider when considering different offers are (all figures are estimates):
- Ongoing/monthly service fees: $0 to $10
- Establishment fee: $0 to $600
- Early repayment fee: depends on loan value and time remaining
- Late payment fees: $15 to $35
Loan amounts
Not every lender will offer the same potential borrowing range on their loans. While they can range from as little as $5,001 to as much as $75,000 unsecured, some financiers may impose higher minimums of $10,000 or more and many cap their loans at a maximum of $50,000.
Term lengths
The same applies to the potential term lengths on offer; some lenders won’t offer the full range of one to seven years. Some may raise the minimum term to two or three years, while on the other end of the scale, seven isn’t always the magic number, with financiers offering loans with repayment periods up to a maximum of five years.
Repayment flexibility
It’s important to also consider how much freedom you get when repaying your personal loan. Having a loan with no early repayment fees could help you save a significant amount of money over the life of your loan.
For example, a $30,000, five-year loan repaid monthly at 7.50% p.a. would set you back $6,069 in interest overall. However, by making a free additional repayment of $100 per month, you’d slash the total cost to $5,019 and have it paid off ten months earlier.
Qualification criteria
Although different lenders will have different criteria, some basic points are likely to apply across the board. We’ve unpacked these further down so you can know what you’ll need when you apply through Savvy.
It’s important to compare your personal loan options before you apply, which you can do right here with Savvy. We’re partnered with reputable lenders from around the country to help provide you with high-quality comparisons.
How much will I be able to borrow?
The pros and cons of debt consolidation loans
Apply for your personal loan online
Personal loan eligibility and documentation
Common debt consolidation questions answered
Yes – your personal loan doesn’t just have to be used towards consolidating debts. You can ask for funds beyond your total debt for any number of purposes, such as for home improvements, purchasing a vehicle or simply for a quick getaway.
Although some lenders will require a clean record when it comes to defaults and bankruptcies, this isn’t the case with all of them. Different defaults will be treated differently; for instance, a default on a phone bill isn’t likely to be an issue, whereas a recent default on another personal loan may be. When you enquire with us, you can speak with a friendly member of our team about your options.
Balance transfers are made by moving the amount owed from one credit card to another. The advantage of doing this is that, if you’re able to repay your owed funds within their low or no-interest period, you can save a significant amount.
However, like any credit card, interest rates after this point are much higher than the standard personal loan, meaning any amount not paid within that period will accrue significant interest. If your debts are more substantial, a loan might be a cheaper, more manageable option.
Yes – we’re partnered with flexible lenders who can work with borrowers who have average to poor credit scores. Interest rates and fees will be higher for these loans, as borrowers are deemed a greater risk compared to those with good credit ratings, and you generally won’t be able to borrow as much. However, they still may be more likely to cost less than letting each of your debts run its course.
Yes – if you and your partner both have outstanding debts that you’d like to consolidate, you can do so on the same loan. Making a joint application with your partner is a great way to maximise your chances of approval and increase your overall borrowing power.
Yes – you may also be able to cover your high-interest debts with your home loan. The clear advantages of this option are its convenience and the fact that it probably won’t impact your budget much. However, bundling a relatively small debt into your large, long-term mortgage will generally result in you paying much more interest on that portion than you would with a standard personal loan.
