Which debts can you consolidate?
Personal loans used for consolidation may cover credit cards, store cards, car loans or other personal loans. Acceptance depends on the lender and the accounts involved. Great Southern Bank, for example, lists several of these uses and assesses an application before paying out debts.
Make a separate list of debts you want to refinance and those you will keep. Ask specifically about buy now pay later balances, overdue accounts, joint debts and any debt outside ordinary consumer lending. A loan described as multipurpose is not proof that every creditor or account type is accepted.
If the new loan covers only part of what you owe, include the remaining payments in your budget. Borrowing enough to combine two accounts does not simplify the third account away.
Compare the cost from today to the final repayment
Start with current payout figures, rates, fees, payments and remaining terms. Compare these with the new offer on a common repayment timetable before considering an extension. Moneysmart recommends checking the full costs and stress-testing the new repayment.
| Keep existing debts | Take a consolidation loan |
|---|---|
| Future repayments and fees until each debt is cleared | All new-loan repayments plus any fees paid separately |
| Current balances and any promotional-rate expiry | Accurate payouts, old-loan exit charges and any extra amount borrowed |
| The date each payment ends | The new final repayment date and cost of extending it |
Do not count past interest that cannot be recovered. Do not add an establishment fee twice if it is already financed into the new principal. For a credit card, compare a planned payoff schedule rather than assuming today's minimum payment stays fixed indefinitely.
Example: a lower rate can still cost more
Hypothetical illustration, not available loan offers. Assume $15,000 of existing debt would be repaid at a fixed 18% p.a. over three years. Compare a new loan at 12% p.a., with a $300 fee paid separately upfront.
| Option | Monthly payment | Total from today |
|---|---|---|
| Keep debt: 18%, 3 years | $542.29 | $19,522.29 |
| Consolidate: 12%, 3 years | $498.21 | $18,235.73 |
| Consolidate: 12%, 5 years | $333.67 | $20,320.00 |
The three-year option saves approximately $1,286.57. Extending to five years lowers the payment much further but costs approximately $797.71 more than keeping the original repayment plan.
Calculations use monthly principal-and-interest payments and unrounded amounts before displaying totals. They assume no other fees, exit charges, missed payments, extra repayments or rate changes. Real credit cards and loans may calculate interest differently. Test your own figures in the calculator, including the fees relevant to your offer.
Make sure the old debts are actually cleared
Ask who receives the money and who closes each old account. These are different tasks. Great Southern Bank's FAQ says it pays the institutions named in the loan contract, while the borrower must close those accounts. Its published clearing timeframe is typically two to three business days after settlement, not an approval guarantee.
- Obtain payout amounts valid for the intended settlement date. A displayed balance may omit interest accrued since the last statement.
- Confirm every account number and payment reference with the lender.
- Keep scheduled payments in place until the relevant creditor confirms what is still due.
- Check each final balance, request closure where appropriate, and retain confirmation.
Before cancelling a card, move essential recurring payments, deal with pending transactions and confirm all interest and fees are covered. Moneysmart's cancellation checklist explains the steps. Paying a balance down is not the same as cancelling the facility.
Prepare a complete consolidation application
Expect to provide identification, income evidence, expenses and existing-debt details. Requirements differ: Great Southern Bank's application list is one lender example. Check the eligibility guide and obtain the chosen lender's document list.
For each account, prepare the creditor's name, account holder, balance, limit, repayment and current payout figure. Tell the lender about arrears or payment arrangements rather than assuming the refinance will make them irrelevant. Ask whether a rate estimate involves a credit enquiry before submitting a full application. The offered amount or rate may differ from what you requested, so rerun the cost comparison before accepting.
Avoid replacing one debt problem with another
Leave out extra spending money unless there is a separate, affordable reason to borrow it. Otherwise the starting debt grows before you make the first repayment. Make a plan for old credit limits so paid-off cards do not become new debt alongside the consolidation loan.
Using a home or car as security changes the consequences of falling behind. The National Debt Helpline warns about turning unsecured debts into secured debt and taking on another person's debt through a joint loan. A lower interest rate does not remove those risks.
For mortgage consolidation, compare paying the added debt off over its original intended timeframe as well as the mortgage term. Keep the repayment plan affordable; do not assume future refinancing or extra income will make an unsuitable arrangement work.
When another option may be more useful
If essentials and current repayments already exceed your income, a new loan is not a reliable fix. Ask creditors about hardship assistance, such as a payment arrangement suited to your circumstances. A free financial counsellor can help you work through options; call the National Debt Helpline on 1800 007 007.
If you can manage your payments, compare keeping the debts and paying them down faster, negotiating with existing providers, or a suitable balance transfer. For a balance-transfer card, check transfer fees, the promotional end date, the later rate and how new purchases are treated. Work out the payment needed to clear the balance during the offer; the minimum payment may be insufficient.