Compare debt consolidation loans Australia

What is a debt consolidation loan?

A debt consolidation loan combines some or all of your existing debts (including any credit card debt and debts from other loan products) into one personal loan, which you may use to pay off your other lenders, and then repay over time. The aim is to make it easier to manage your repayments. If you take out a personal loan with a lower interest rate and fees than what you’re paying on your existing products, this could also help to reduce your overall debt.

How does a debt consolidation loan work?

A personal loan for debt consolidation is designed to combine your existing debt into one loan, ideally making it easier for you to manage your repayments. Unlike a credit card or other lines of credit, a personal loan has a fixed loan term (usually between one and seven years), which means loan repayments will continue up until that set date, in which the loan will need to have been repaid in full with associated interest. They may also charge fees such as upfront, ongoing or missed/late payment fees.

Depending on the type of debt consolidation loan you take out, you’ll either be required to pay the same fixed amount for each repayment cycle (be it weekly, fortnightly or monthly) or a variable amount which can change due to economic factors (like the cash rate changing and/or your lender’s operating costs increasing). The repayments you make will generally be comprised of principal (the money you initially borrow) and interest (money given to the lender in exchange for the loan) payments.

The interest rates for debt consolidation loans are typically lower than other forms of debt like credit cards. They also generally allow you to borrow from $2,000 up to $100,000, depending on the lender and your own eligibility. This could mean that it’s easier to consolidate all of your debts into one place when compared to other forms of debt consolidation such as balance transfer credit cards.

Are debt consolidation loans a good idea?

As with any type of loan, there are pros and cons to taking out a personal loan for debt consolidation. A debt consolidation loan can have several possible benefits, such as:

• You only have to make one regular repayment, which may make your debt easier to manage
• You may be able to save on interest charges by getting a personal loan with a lower interest rate than your existing debts
• Personal loans are repaid over a fixed term, so you have a clear timeline for when you can be debt-free (provided you make your repayments and pay any additional fees on time). This is compared to credit cards where interest can accumulate over a long timeframe because providers don’t generally impose hard deadlines for repaying the full debt.

However, if the loan is more expensive than your existing debts, then you could end up accumulating more debt through interest and fees. It’s important to compare the interest rate and fees of any new loan you’re considering against your current debts. According to the Federal Government’s Moneysmart website, the fees you’re charged could include upfront and ongoing fees for the new loan, as well as penalties for paying off your old loans early.

You should also look at the term of the new loan and work out how much you would end up paying over the life of the loan. Generally, the longer the term, the lower your regular repayments would be, but the more you would pay in total.

If you’re finding it difficult to manage your credit card repayments or other debt, you can also contact your lender or credit card provider to see what your options are, which Moneysmart suggests doing before you apply for a debt consolidation loan or pay a company to help you consolidate your debts. You might also want to seek advice from a financial counsellor. Financial counsellors offer free, independent and confidential advice. You can speak to one through the National Debt Helpline on 1800 007 007.

How can I compare debt consolidation loans?

It’s worth comparing debt consolidation loans before committing to one, because the cost can vary significantly between providers. For any loan you’re considering, take note of the interest rate (including whether it’s fixed or variable, the fees, the loan term and the features available (like the ability to make extra repayments without paying a fee). You can click the ‘Get Started Now’ button at the top of the page and supply some of your information to generate a more personalised comparison table. You can then click the ‘Go to site’ button next to your chosen option. Otherwise, you can use the table at the top of this page to compare different types of loans from our Online Partners, filtering your options to suit your requirements.

Eligibility and the interest rate you’re offered may be subject to your credit score and other financial circumstances. For example, some lenders offer better debt consolidation loan interest rates to borrowers with higher credit scores. If your score is not as high as you would like, there are steps you can take to help improve it, such as paying your bills on time, checking your credit report for inaccuracies and lowering your credit limits where appropriate. You can also check your credit score for free with Canstar or via the Canstar App.

Keep in mind that a lender might not approve your application if it thinks your credit score is too low or if you don’t meet its other eligibility criteria. Before applying, you should also confirm with the provider whether the loan can be used for debt consolidation purposes.

It’s important to make sure you can afford the new repayments on the debt consolidation loan. If you can, you may be able to save a significant amount in interest and fees.

How to apply for a debt consolidation loan

You can generally apply for a debt consolidation loan using your chosen lender’s website, over the phone or in person at a physical bank/financial institution branch. Before you apply though, it’s important to research and compare your options, as this can assist you in finding the right personal loan for debt consolidation for your needs.

You’ll need to prepare the necessary documents for your application, such as photo ID, proof of income and details on existing debts and any monthly expenses. Your chosen lender will require these in order to assess if its product is appropriate for your financial situation (per Australia’s responsible lending laws). You should also check any eligibility requirements that apply before submitting an application.

It’s also important to note that making multiple credit applications in a short space of time can hurt your credit score. Take your time when assessing your loan options and only apply once you’re confident with your decision. You should also read all relevant documentation, such as the Product Disclosure Statement (PDS) and Target Market Determination (TMD), for any loan you’re considering. It may also be worth obtaining financial advice before making your decision.