A debt consolidation loan combines several debts, such as credit cards, a car loan and personal loans, into a single loan with one repayment. You can do it with a personal loan, or by refinancing your home loan and using equity to pay out the other debts.
Consolidation can make repayments simpler and may reduce what you pay each month. It does not automatically save money. If the new loan runs over a longer term or charges fees, the total you repay can go up, even at a lower interest rate.
The right choice depends on how much you owe, whether you own property, and whether you can stop the old debts building up again. If you are already behind on repayments, talk to your lenders about hardship first.
What should debt consolidation achieve?
A sound consolidation plan should do four things:
- Make your repayments simpler.
- Make your monthly cash flow more reliable.
- Keep or reduce the total interest and fees you pay over the life of the debt.
- Stop the debt building up again.
If one of these is missing, consolidation may only delay the pressure. Moneysmart’s guide to debt consolidation and refinancing recommends comparing the interest rate, fees and term of the new loan against your current debts before you switch.
Why can consolidation cost more in the long run?
This is the risk people most often miss. A home loan rate is usually lower than a credit card or personal loan rate, but a home loan also runs for much longer.
The figures below are illustrative arithmetic using assumed rates. They are not quotes.
| $20,000 of debt | Assumed rate | Term | Approx. monthly repayment | Approx. total interest |
|---|---|---|---|---|
| Added to home loan, repaid over remaining term | 6.00% p.a. | 25 years | $129 | $18,660 |
| Added to home loan, repaid faster | 6.00% p.a. | 5 years | $387 | $3,200 |
| Personal loan | 11.00% p.a. | 5 years | $435 | $6,090 |
Rolling the debt into a 25-year mortgage gives the smallest monthly repayment, but it can cost the most interest overall. Paying that portion off faster changes the picture completely. Moneysmart warns that a lower repayment over a longer term can mean paying more in interest and fees.
How does consolidating through a home loan refinance work?
You refinance your home loan to a larger amount, or top up your existing loan, and use the extra funds to pay out your other debts.
Who it may suit
- larger debt balances where monthly relief matters
- homeowners with enough equity and an acceptable credit history
- people already reviewing their home loan
Risks to manage
- turning short-term debt into long-term mortgage debt
- paying mortgage interest on old credit card spending for decades
- treating equity as a repeat solution
How to make it work more safely
- put the consolidated amount in its own loan split
- set a fixed extra repayment so that split is cleared within a few years
- keep a realistic emergency buffer so you don’t fall back on cards
Lenders still assess the whole new loan, including a buffer of at least 3 percentage points above the loan rate (APRA, APG 223). With the RBA cash rate target at 4.60% since 30 September 2026 (RBA), check that the larger home loan stays comfortable. Our cash-out refinance guide explains how usable equity is worked out.
How does consolidating with a personal loan work?
You take out a personal loan with a fixed term and use it to pay out your other debts. Moneysmart’s personal loans guide explains how to compare rates, fees and terms.
Who it may suit
- small to moderate debt totals
- people who want a clear end date
- renters, or homeowners without enough equity
Risks to manage
- the rate may be higher than a home loan rate
- keeping old card limits open makes it easy to borrow again
How to make it work more safely
- close or reduce old credit cards once they are paid out
- choose a term you can realistically repay
- automate repayments to match your pay cycle
You can compare options on our personal loans page.
Refinance vs personal loan: which is better for consolidation?
| Option | May suit | Watch out for |
|---|---|---|
| Home loan refinance or top-up | Larger balances, homeowners with equity, urgent cash-flow relief | Can increase lifetime interest unless you repay faster; uses your home as security |
| Personal loan | Moderate balances, a fixed end date, people without equity | Monthly repayment may be higher; old limits must be closed |
| Not consolidating | When your current debts are already low cost and under control | Several due dates and missed-payment risk remain |
What should you do if you’re already struggling with repayments?
A new loan isn’t always the answer. If you are behind or about to fall behind, Moneysmart’s financial hardship guidance explains how to ask your lenders for help, such as a temporary change to your repayments. Contact them as early as you can.
Moneysmart’s guide to getting debt under control also explains how to list your debts, set priorities and contact a free, independent financial counsellor. A counsellor can help you work out whether consolidation, a hardship arrangement or another option makes the most sense, at no cost.
Be wary of businesses that promise to fix your debts quickly for a fee. Moneysmart warns some debt help services charge high fees, so check who you are dealing with.
How do you decide whether to consolidate?
Step 1: Build your debt map
List each debt with its balance, interest rate, monthly repayment, remaining term and any early payout fees. Without this baseline, any comparison is guesswork.
Step 2: Compare at least two options
Compare consolidation through a refinance and through a personal loan on total monthly repayment, total interest and fees, and how long until you are debt free. The loan comparison calculator can help.
Step 3: Add a spending plan
Even the best loan fails if the habits that built the debt don’t change. Reduce card limits, set spending caps and plan to increase repayments when your income rises.
Step 4: Test a 12-month shock
Check the plan still works if your income dips, an essential cost rises or rates move. If it breaks under mild stress, adjust before you sign.
Which mistakes turn consolidation into a false win?
- Judging it by the monthly repayment alone. A lower figure can hide a much larger total cost.
- Keeping old credit limits open. Debt can rebuild quickly.
- Having no payoff date. Without a target, the balance can drift on for years.
- Applying to lenders that don’t fit. Declines add credit enquiries and can make the next application harder.
What should you prepare before speaking to a broker?
- the last three to six months of statements for each debt
- your home loan statement, if you own property
- income evidence, such as payslips or tax returns
- a snapshot of your household spending
- the monthly repayment you are comfortable with
When you’re ready, start an enquiry and we can compare refinance and personal loan options for your situation. All lending is subject to the lender’s criteria and approval.
Final word
The right debt consolidation loan gives you control, not just temporary relief. Compare the total cost, close old limits and set a payoff date. If repayments are already hard to manage, speak to your lenders and a free financial counsellor before taking on new credit.