Personal loans: is it best to consolidate debt or pay it off separately?

woman on laptop working out her debt

If you have multiple personal debts, you may be wondering: what is the simplest way to pay back what I owe? 

Reality is, it’s totally up to you. 

But there are some financial hacks which may help you save on interest and make your repayments more convenient.  

What is personal debt? 

When talking about “personal debt” we mean things like personal loans, car loans, credit cards etc. 

Generally speaking, mortgage debt doesn’t fall into this category as home loans tend to be of a longer period of time and operate a bit differently when it comes to consolidation. 

At the moment, the average rate across personal loans and credit cards on the Mozo database are as follows: 

  • Fixed personal loan: 7.36% 
  • Variable personal loan: 5.05%
  • Car loan: 6.68% 
  • Credit cards: 17.43% 

So someone with debt across multiple financial products might be forking out a lot in interest across a number of different repayments they make. 

So how do I clear my debt? 

There are a few ways to clear your personal debt: paying it off separately or opting to consolidate your debt

If you’d prefer to pay your debt off separately, it means juggling multiple repayments and deciding which products you prioritise. 

This is a totally viable option for some customers, as long as you stick to your repayments and avoid being whacked with any late payment penalties. 

There are two main strategies to paying off your personal debt separately: 

  • Pay off debt with the highest interest rate first: This way you are maximising the amount of interest you avoid paying. 
  • Pay off debt with the lowest balance first: This can be a great way to boost your motivation by clearing smaller debts first and create one less debt for you to manage once it's paid off. 

It’s crucial to keep in mind here though that you cannot simply ignore a given debt amount even if you are placing more focus on another. 

For example
, say you decide paying off your car loan is more important than your credit card debt. In this case, you must make sure you continue to pay your minimum repayment amount on your credit card alongside your car loan repayments to avoid incurring a late fee.  

Alternatively, there is the option to take out a debt consolidation loan instead. Here’s how it works …  

What is the smartest way to consolidate debt?

A debt consolidation loan can be a smart way to reduce the interest you pay on your debt and make your repayments more manageable. Offered by banks and personal loan lenders, there are plenty of options whether you prefer more traditional banking or completely online loans instead. 

With debt consolidation, rather than making multiple repayments across financial products like loans or credit cards, this product rolls all these debts into one. That way, each week, fortnight or month you only have to make one repayment, rather than a few, which makes things easier for you. 

Plus, you can align your repayments with when your salary hits your account and even set up automated payments, making the whole process pretty thought-free! 

In most cases, the interest rate you’re offered will be lower than at least one of the interest rates you currently have (if not all of them). This means that by combining your debts you could actually be charged less interest on what you owe. 

As mentioned above, when referring to personal debts, we don’t mean your home loan. It isn’t wise to include your mortgage in a debt consolidation loan because the length of the loan (around 20 to 30 years) will actually draw out other personal debts and may end up costing you more in interest. 

Want to start comparing debt consolidation loans right now? Check out these options below or head to our debt consolidation loan hub for more!

Compare debt consolidation loans - last updated 18 May 2022

Search promoted personal loans below or do a full Mozo database search. Advertiser disclosure
  • Personal Loan

    Unsecured, Fixed, Excellent Credit

    interest rate
    comparison rate
    Monthly repayment
    6.39% 7.89% p.a.
    6.39% 8.49% p.a.based on $30,000
    over 5 years

    With low rates for borrowers with excellent credit, a quick 1 minute rate estimate and simple online application, there’s a lot to love about this loan! You’ll not only benefit from no exit fees, there are also no early repayment fees. You could qualify by simply earning above $25,000 and you’ll be on the way to start spending (other eligibility criteria may apply).

    Repayment terms from 3 years to 5 years. Representative example: a 5 year $30,000 loan at 6.39% would cost $35,126.40 including fees.

  • Home Improvement Loan

    Fixed, Unsecured

    interest rate
    comparison rate
    Monthly repayment
    5.75% p.a.
    5.96% p.a.based on $30,000
    over 5 years

    Handypay offers flexible home improvement loans for Excellent Credit or better. Handypay is a specialist home improvement plan provider and offers loans up to $75,000.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 5.75% would cost $34,840.18 including fees.

  • Unsecured Personal Loan


    interest rate
    comparison rate
    Monthly repayment
    5.35% 19.09% p.a.
    6.14% 19.99% p.a.based on $30,000
    over 5 years

    Fast, easy and 100% online, this is a low cost loan with no ongoing fees or extra repayment penalties. It's perfect for savvy borrowers with great credit. If you’re over 18 and earn above $30,000, you could qualify (other eligibility criteria may apply).

    Repayment terms from 3 years to 7 years. Representative example: a 5 year $30,000 loan at 5.35% would cost $34,832.61 including fees.

  • Unsecured Personal Loan


    interest rate
    comparison rate
    Monthly repayment
    5.95% 17.45% p.a.
    6.79% 17.86% p.a.based on $30,000
    over 5 years

    Wisr offers personal loans for any worthwhile purpose, tailored to your credit score to ensure you’re getting a fair deal. Plus, no ongoing or early exit fees. Loans from $5,000 to $79,000. Terms of either 3, 5 or 7 years. $595 establishment fee. Eligibility criteria applies.

    Repayment terms from 3 years to 5 years. Representative example: a 5 year $30,000 loan at 5.95% would cost $35,352.21 including fees.


* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

^See information about the Mozo Experts Choice Personal Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.