Debt Consolidation allows you to combine multiple debts into a single loan. Find out if this is right for you.

In this article

• What is debt consolidation?

• How does debt consolidation work?

• What does debt consolidation mean?

• What is a debt consolidation loan?

• What are the different types of debt consolidation?

• How does debt consolidation affect your credit score and report?

• How to get a debt consolidation loan with bad credit?

• Pros and cons of debt consolidation

• What's next

Paying off multiple debts at the same time can be both complicated and challenging. Debt consolidation can help you to collate all of your existing debts into one loan which can in turn offer you a better control over your financial situation.

Let's take a look at everything you need to know about debt consolidation:

What is debt consolidation?

Debt consolidation is defined as taking out a new loan in order to pay off other consumer debts and liabilities. In other words, you combine multiple debts into one large debt like a loan and pay it off with a more favourable repayment term like lower monthly payments, lower interest rate, or both. It can be especially helpful for paying off old loans, credit card debt, and other liabilities.

The debt consolidation can be done in the form of a loan or even a new credit card.

How does debt consolidation work?

Debt consolidation works by using different types of financing to pay off other debts. In case you have been burdened with different kinds of debt, you can apply for a new loan that consolidates all the debt together into just one single liability. You will then be required to make payments for the new debt until you have paid it in full.

The first step for consolidating your debt is applying for a loan with a bank, credit card company, or credit union. If you have a good payment history and credit score, you may be more likely to be approved for the new loan and offered favourable conditions, subject to the lender's own checks. In case your application gets turned down, you can also apply to other private lenders and mortgage companies which may end up offering you the loan but at a higher interest rate.

Lenders are willing to offer debt consolidation loans for many reasons. For starters, debt consolidation increases the loan amount and also increases the likelihood of collecting from the debtors.

What does debt consolidation mean?

Debt consolidation is the process of combining all your debts into one loan. This loan is usually at a lower interest rate and has a longer repayment period.

There are two main approaches to tackling multiple debts:

• Debt Consolidation Loan: You take out a new loan to pay off your existing debts

• Debt Settlement: You negotiate with the creditors to reduce the amount you owe them and even potentially get the interest rate lowered.

Note that debt consolidation can help you save money on interest payments, but it may not be the best option for everyone.

What is a debt consolidation loan?

The loan that you take to consolidate all of your different high-interest debts and loans into one is called a debt consolidation loan. The idea is to pay off your entire range of debts through one affordable loan and in turn make it easier to repay the loan.

How Much Can You Borrow With a Debt Consolidation Loan in Australia?

The amount you can borrow with a debt consolidation loan in Australia depends on your income, existing financial commitments, credit history, and the lender's own policies. Most personal loans used for consolidation range from $5,000 to $50,000, though some secured products extend well beyond that.

Typical loan amounts and what lenders look at

When assessing your application, lenders focus on your debt-to-income ratio - the proportion of your gross income that goes towards servicing existing debts. As a general rule, most Australian lenders prefer this ratio to sit below 30-40%. They'll also review your living expenses, employment stability, and credit file. If you're applying for a debt consolidation loan to combine credit card balances, personal loans, or buy-now-pay-later accounts, the new loan amount will need to cover the total of those outstanding balances plus any applicable fees.

What salary do you need for common loan amounts?

While every lender applies its own serviceability calculator, the following ranges offer a general indication of the gross annual income typically expected for common consolidation loan sizes in Australia:

• $20,000 loan (5-year term): A gross income of roughly $45,000-$55,000 per year is usually sufficient, assuming moderate living expenses and no large existing debts.

• $30,000 loan (5-year term): Most lenders look for a gross income of around $55,000-$70,000, depending on your other commitments.

• $50,000 loan (5-7-year term): You'll generally need a gross income of $80,000 or more, particularly if you have dependants or other loan obligations.

These figures are indicative only. Lenders weigh the full picture - a borrower earning $60,000 with minimal expenses may qualify for a larger loan than someone on $90,000 with heavy existing commitments.

Indicative monthly repayment ranges

To help you plan, here are approximate monthly repayments at a mid-range interest rate of 10% p.a.:

• $10,000 over 3 years: approximately $323 per month

• $20,000 over 5 years: approximately $425 per month

• $30,000 over 5 years: approximately $637 per month

• $50,000 over 7 years: approximately $830 per month

Actual repayments will vary based on the rate you're offered and any fees charged. Comparing multiple offers before you apply for a debt consolidation loan helps ensure you secure the most affordable option for your circumstances.

What are the different types of debt consolidation?

Debt consolidation loans

Many banks, financial institutions, and lenders offer debt consolidation loans and make payment programs for borrowers that might be struggling to deal with the sheer size and number of their existing outstanding debt. These loans are specifically designed to make it easier for people who need to pay down multiple high-interest debts together.

Credit cards

Getting a new credit card is also a good idea to consolidate debt and pay it off together through a new card. You can choose to get a balance transfer credit card to transfer all of your existing balance to a new card, preferably at a rather low introductory interest rate.

Just like with the other types of debt consolidation options available, balance transfer cards also result in a single payment and it can greatly reduce your overall debt cost by lowering the interest rate. In some cases, you may even get a 0% rate as an introductory offer.

Though, before transferring to a new credit card, you should also look out for other costs like balance transfer fees, the available interest rate, and the new interest rate that will be applicable after the introductory period is over.

Secured vs Unsecured Debt Consolidation Loans: What's the Difference?

When you apply for a debt consolidation loan in Australia, one of the first decisions you'll face is whether to choose a secured or unsecured option. Both can simplify your repayments, but they differ significantly in eligibility requirements, interest rates, and risk.

Which type of secured loan has the lowest interest rate in Australia?

Home-equity secured loans typically offer the lowest interest rates among secured consolidation products, because the property provides substantial security for the lender. Rates on home-equity consolidation loans can sit several percentage points below standard secured personal loans. However, using your home as collateral carries serious risk - if repayments fall behind, the lender may ultimately force a sale. Vehicle-secured loans sit in between, offering rates lower than unsecured products but higher than home-equity options.

Is it difficult to get a secured loan for debt consolidation?

Secured loans are generally easier to obtain than unsecured ones because the collateral reduces the lender's risk. If you own an asset of sufficient value - such as a car that is fully paid off or equity in your home - collateral may affect the terms or availability of a loan, but it does not ensure approval - each lender applies its own eligibility and serviceability assessment. The key requirements are proof of ownership, a current valuation of the asset, and evidence that you can afford the repayments based on your income and existing commitments.

Which banks and lenders offer secured consolidation loans in Australia?

Australia's major banks - Commonwealth Bank, Westpac, ANZ, and NAB - offer personal loans that can be used for debt consolidation, but these are unsecured; their secured personal lending is generally a car loan tied to buying a vehicle. Credit unions and online lenders such as Pepper Money, Liberty, and Latitude also provide secured consolidation options, sometimes with more flexible eligibility criteria. Comparing offers from multiple lenders is essential, as rates, fees, and maximum loan terms can vary widely. You can check your personalised loan offers through ClearScore (a credit broker, not a lender) to see what you may be eligible for without affecting your credit score.

How does debt consolidation affect your credit score and report?

Debt consolidation which combines multiple debts into a singular loan may affect your credit scores over time as you pay down what you owe, though the effect depends on the credit reporting body's methodology, your full credit history and lender practices. You may see your credit score go down for a short while just as the debt consolidation loan starts.

But as long as you can make your payments on time and you don't end up building more debt over your existing one, it should all be okay.

Some of the reasons why your credit score drops when you are consolidating debt, include:

• Applying for a new line of credit: When you apply for a balance transfer card or a personal loan, the lender will usually perform a hard enquiry against your credit report to assess your creditworthiness. Too many applications for a new line of credit in a short span of time can lead to a decrease in your credit score.

• Opening a new credit account: When you open a new credit account, it can temporarily lower your credit score. That is because the new credit line is assumed as a risk by lenders.

• A decrease in the average age of credit: As all of your credit accounts get older and show a positive account history of timely payments, your credit score may rise. But when you open a new account, it ends up lowering the average age of credit which can lower your credit scores.

But those are only some short-term consequences. Here are some long-term benefits from consolidating your debt and why you should consider debt consolidation:

Lower credit utilisation ratio: It is the ratio that measures the total amount of credit you are using versus the total credit that is available to you. When you get a new credit card approved, it can decrease your credit utilisation ratio, which may in turn support an improved credit score.

Better payment history: It might take some time, but as you start to pay timely payments on your new loan, your payment history may build up over time, though any effect on your credit scores varies by credit reporting body and your wider credit history. After all, the payment history is one of the biggest factors that end up influencing your credit file in the long run.

How to get a debt consolidation loan with bad credit?

1 - Routinely check your credit score

Lenders often base the loan decision and the loan conditions partly on your credit score. In order to get approved for a debt consolidation loan, you will have to first be eligible for the minimum requirement set by the lender.

While some lenders may accept applicants with bad scores, most don't. And even if you end up getting approved with a Raise your game score, you may get stuck with a high interest rate.

Moreover, applying for too many debt consolidations for bad credit in a short span of time can further lower your credit scores.

That is why, you need to first check your credit scores to assess which loan programs you qualify for and which ones you just don't.

2 - Shop around for loan offers

It's never a good idea to accept just about the first loan offer that you end up getting. Instead, you should do your own research in order to compare all the different repayment terms, loan amounts, and fees involved for different banks, credit card providers, and online lenders. While the process can surely take some time, it can help you save hundreds or even thousands of dollars.

Once you have already checked your credit score, you can check out all the different lenders and then compare the offers along with the likelihood of you getting approved.

3 - Consider getting an unsecured loan

Many of the personal loans that you get for debt consolidation are unsecured, which means they don't require you to put any collateral against them. In case you are struggling to get approved for an unsecured loan at an affordable interest rate, you can apply for a secured loan instead.

With secured loans, you will be required to put some kind of asset as collateral like your home or vehicle. Ideally, the collateral's worth should be equal or more than the loan amount you are trying to get approved. It is usually easier to get approved for a secured loan than an unsecured loan and you may even be able to get a lowered interest rate.

4 - Wait and improve your credit

If you have tried everything there is and you still can't get approved for a debt consolidation loan that can actually help save you money, it may be best to hold off for a while.

You can instead work towards establishing a better credit score and then apply later with a higher score on your credit file.

If you have credit card debt, you can focus on paying it first and lowering your monthly expenses. The goal should be to lessen your debt as much as you can by getting a debt consolidation loan.

What Types of Debt Can You Consolidate in Australia?

Debt consolidation loans are flexible enough to cover a wide range of personal liabilities, but not every type of debt is eligible. Understanding what can and can't be included helps you plan realistically before you apply.

Common debts eligible for consolidation

Most Australian lenders will allow you to consolidate the following types of debt into a single personal loan:

• Credit card balances - one of the most common reasons people consolidate, especially when juggling multiple cards with high interest rates.

• Existing personal loans - including both bank and non-bank lender products.

• Medical and surgical bills - out-of-pocket healthcare costs, dental work, and elective surgery expenses can generally be rolled into a consolidation loan. If you're facing a large medical bill, a personal loan may offer a lower interest rate than a payment plan arranged directly through the provider.

• Buy-now-pay-later (BNPL) balances - outstanding amounts with services like Afterpay, Zip, or Humm can usually be included.

• Car loan debt - provided the vehicle isn't already used as security on another active loan.

• Overdue utility or phone bills - smaller debts that have accumulated over time.

Debts that typically cannot be consolidated

Certain obligations are excluded from standard debt consolidation products in Australia:

• HECS-HELP student loans - these are repaid through the tax system and cannot be refinanced with a private lender.

• ATO tax debt - the Australian Taxation Office has its own payment plan arrangements; most lenders won't accept ATO liabilities as part of a consolidation application.

• Court-ordered fines and penalties - including traffic fines and child support arrears, which must be paid through the issuing authority.

• Centrelink overpayments - these are recovered by Services Australia and are not eligible for private refinancing.

Using a personal loan for medical or surgical expenses

If you need to pay for surgery or a medical procedure upfront, a personal loan can bridge the gap between what Medicare or private health insurance covers and the total cost. Many Australians use personal loans for dental implants, elective surgeries, and fertility treatments. When consolidating, you can bundle these medical costs alongside your other eligible debts to keep everything in a single repayment. Just be sure to factor in the full loan term when calculating total cost - spreading a medical bill over several years means paying interest on it for the duration.

Pros and cons of debt consolidation

Pros

• Allows you to manage your debt effectively by combining all the pending loans together into a single one

• Can possibly lower your total interest rate by consolidating all the debt into a low interest personal loan or even a zero-interest balance transfer credit card

• Lower down your overall monthly payment by extending the overall period of the loan to make it easier to pay off all the debt

• Pay your debt sooner through fixed and consolidated monthly repayments

Cons

• You may have to pay a balance transfer fee, closing fee, loan origin fee or any other overhead costs involved

• If you can't get an unsecured loan, you may have to get a secured loan by putting an asset as collateral

• Debt consolidation does not always guarantee a lowered interest rate, especially if your credit score is already low

• When you have a longer repayment period, it can eventually lead to a higher cost

• If you don't eventually improve in the money management area, your debt will end up accumulating even more

Frequently Asked Questions About Debt Consolidation

What's the easiest debt consolidation loan to get approved for in Australia?

Secured personal loans are typically the easiest consolidation loans to get approved for, because the collateral you offer lowers the lender's risk. If you don't own a suitable asset, some online lenders and credit unions have more relaxed eligibility criteria than the major banks, though interest rates may be higher. Checking your credit score before you apply helps you target lenders whose minimum requirements you already meet - this avoids unnecessary hard enquiries that can further lower your score.

Can I consolidate debt with extremely bad credit?

It is possible, but your options will be more limited. Some specialist lenders in Australia cater to applicants with lower credit scores, though you should expect higher interest rates and stricter loan conditions. Before accepting any offer, calculate whether the total cost of the new loan - including fees and interest over the full term - is genuinely lower than what you're currently paying. If the numbers don't stack up, it may be better to focus on improving your credit score first and applying later. You can also explore free financial counselling through the National Debt Helpline (1800 007 007) for independent guidance.

How much would a $30,000 debt consolidation loan cost per month?

Monthly repayments on a $30,000 consolidation loan depend on the interest rate and loan term. As a rough guide, at an interest rate of 10% p.a. over five years, you'd pay approximately $637 per month. At 8% p.a. over the same term, repayments drop to around $608 per month. Extending the term to seven years lowers monthly payments further but increases the total interest paid over the life of the loan. Always compare the total cost - not just the monthly figure - when evaluating offers.

What is the biggest factor that hurts your credit score during consolidation?

The single biggest short-term hit usually comes from multiple hard enquiries on your credit file. Each time a lender runs a credit check as part of a formal application, it's recorded as a hard enquiry. Several of these in a short period signal to future lenders that you may be in financial difficulty, which can push your score down. To minimise the impact, research your options thoroughly and only submit formal applications to lenders you're confident will approve you. Using pre-qualification tools - like those available through ClearScore - lets you compare indicative offers without triggering a hard enquiry.

What's next

If you have a lot of debts and you have been having a hard time keeping track of all the different rates of interest and monthly repayments, consolidating your debt into one can make it easier for you to stay on top of things well and clear your debts faster.