Why a debt consolidation loan could be a smart move right now
Many Aussies have experience with debt.
In fact, as of June last year 20% of Australian households have credit card debt, while 33% have other personal debt, according to RBA numbers.
Meaning a whole lot of people are dealing with making repayments, and in some cases, multiple repayments. But the truth is, keeping your debts separate isn’t always the most financially savvy option - considering where personal loan rates sit right now.
This is where a debt consolidation can come in handy.
What is debt consolidation?
A debt consolidation loan is a type of personal loan that rolls your debts into one. It combines debts that come with a high interest rate, like a credit card or loan, meaning you only make one repayment a month rather than multiple.
Generally speaking, these loans come with a lower interest rate means you could end up saving a decent stash of cash. Plus, they usually come with a fixed interest rate meaning your repayment won’t change over the life of the loan.
But what about rolling your mortgage into a consolidation loan?
This is a big no no. Because home loans have longer terms (and sometimes lower interest rates) you could actually end up paying more in interest if it is part of a debt consolidation loan.
Is it smart to consolidate debt?
The answer is likely yes, and we’ll show you why.
Recent numbers from APRA and the RBA have revealed that from July 2019 to January 2021 personal loans rates have dropped. Meanwhile, over the same timeframe credit card rates have actually increased. Here’s a rundown:
| Product | Average Rate 31/07/19 | Average Rate 31/01/21 | Change |
| Fixed rate personal loans | 8.07% | 7.36% | -0.71% |
| Variable rate personal loans | 6.71% | 5.05% | -1.66% |
| Credit Cards | 16.99% | 17.43% | +0.44% |
So what this means is that if you are trying to pay down multiple personal debts, like a credit card debt and a loan with an older interest rate, you may be forking out more in interest than you need to by keeping them separate.
Instead, if you pay down your debt with a single consolidation loan, you may receive a lower interest rate than the one you have right now and end up savings thousands of dollars!
Here's an example:
This is your debt:
Total debt: $32,000
In this scenario, if you were to keep your debts separate, you’d pay a combined monthly repayment of $1,708 costing you $5,892 in interest over three years.
Alternatively, if you rolled your entire $32,000 worth of debt into a three-year consolidation loan with an interest rate of 7.50%, your monthly repayment would be $995. This means that by the end of the loan term, you would have paid $3,834 in interest and saved a solid $2,058.
If you already have your eye on a debt consolidation loan and want to find exactly what your monthly repayment could be, take a look at our personal loan repayment calculator.
Do consolidation loans hurt your credit?
Like all forms of credit products, taking out a debt consolidation loan will impact your credit rating. However, this could be positive or negative.
Because you are likely to be paying down your personal debt at a lower interest rate and in one simple repayment, it may mean you are less likely to miss a repayment and even make extra repayments where you can. By making all your required repayments on time, you can help maintain or build a good credit rating.
On the other hand, if you consistently miss repayments or default on your loan, this will hurt your credit score.
RELATED ARTICLE: How to ditch debt fast in 2021
Want to start comparing debt consolidation loans right now? Check out these killer options below or head over to our debt consolidation loan hub for more.
Compare debt consolidation loans - last updated 24 April 2024
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Mozo experts choice awards won:
- Excellent Credit Unsecured Personal Loan - 2024
Unsecured Personal Loan
Fixed
interest rate
comparison rate
Monthly repayment6.75% p.a.to 26.95% p.a.6.75% p.a.to 26.95% p.a.based on $30,000
over 5 yearsBorrow up to $50,000 unsecured. Perfect if you earn more than $22,100 p.a. and have good to excellent credit. Multi-year winner of Mozo’s Experts Choice Unsecured Personal Loan Award, 2021, 2022, 2023 & 2024^'
Repayment terms from 2 years to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,430.23 including fees.
CompareCompare- interest rate
- 6.75% p.a.to 26.95% p.a.
- comparison rate
- 6.75% p.a.to 26.95% p.a.based on $30,000
over 5 years
- interest rate
- 6.75% p.a.to 26.95% p.a.
- comparison rate
- 6.75% p.a.to 26.95% p.a.based on $30,000
over 5 years
- Upfront fee
- $0.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Repayment options
- Weekly, Fortnightly
- Early repayment penalty
- 0
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 2 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rates based on borrower with excellent credit score. Maximum 3 year term for loan amounts $8,000 or less.
Read our Mozo Review to learn more about the NOW Finance Unsecured Personal Loan
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Unsecured Personal Loan
Fixed
interest rate
comparison rate
Monthly repayment5.76% p.a.to 24.03% p.a.6.55% p.a.to 24.98% p.a.based on $30,000
over 5 yearsFast, 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 5.76% would cost $35,173.52 including fees.
CompareCompare- interest rate
- 5.76% p.a.to 24.03% p.a.
- comparison rate
- 6.55% p.a.to 24.98% p.a.based on $30,000
over 5 years
- interest rate
- 5.76% p.a.to 24.03% p.a.
- comparison rate
- 6.55% p.a.to 24.98% p.a.based on $30,000
over 5 years
- Upfront fee
- $575.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,000.00
- Maximum loan amount
- $70,000.00
- Minimum loan term
- 3 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- Establishment fee is $275 for loans under $5,000.
- Other restrictions
- Establishment fee is added to the loan amount and interest is charged on the total amount.
Read our Mozo Review to learn more about the Harmoney Unsecured Personal Loan
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Featured Product
Mozo experts choice awards won:
- Excellent Credit Unsecured Personal Loan - 2024
Low Rate Personal Loan
Excellent Credit
interest rate
comparison rate
Monthly repayment6.57% p.a.to 8.48% p.a.7.19% p.a.to 8.84% p.a.based on $30,000
over 5 yearsCompetitive low rates for borrowers with excellent credit on 1-7 year loans from $2,001 up to $75,000, plus free extra repayments. Winner of Mozo's Experts Choice Excellent Credit Unsecured Personal Loan 2024 and Excellent Credit Secured Personal Loan 2024 awards ^. Min. income of 25k after tax, to apply.
Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.
CompareCompare- interest rate
- 6.57% p.a.to 8.48% p.a.
- comparison rate
- 7.19% p.a.to 8.84% p.a.based on $30,000
over 5 years
- interest rate
- 6.57% p.a.to 8.48% p.a.
- comparison rate
- 7.19% p.a.to 8.84% p.a.based on $30,000
over 5 years
- Upfront fee
- $250.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $75,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rate for Excellent Credit. Establishment fee varies from $250 and is based on your OurMoneyMarket loan grade and total loan amount. The fee is added to the principal amount and paid over the loan term.
Read our Mozo Review to learn more about the OurMoneyMarket Low Rate Personal Loan
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Express Personal Loan
Secured
interest rate
comparison rate
Monthly repayment14.95% p.a.to 27.95% p.a.29.30% p.a.to 42.8% p.a.based on $10,000
over 3 yearsAccess fast finance on loans from $5,000 to $25,000 with a Jacaranda Finance Personal Loan. Terms from 24-48 months. Check if you qualify with no impact on your credit score. Enjoy a speedy, online approval.
Repayment terms from 2 years to 4 years. Representative example: a 3 year $10,000 loan at 14.95% would cost $14,324.71 including fees.
CompareCompare- interest rate
- 14.95% p.a.to 27.95% p.a.
- comparison rate
- 29.30% p.a.to 42.8% p.a.based on $10,000
over 3 years
- interest rate
- 14.95% p.a.to 27.95% p.a.
- comparison rate
- 29.30% p.a.to 42.8% p.a.based on $10,000
over 3 years
- Upfront fee
- $990.00
- Monthly fee
- $24.00
- Exit fee
- $0.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- 0
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $25,000.00
- Minimum loan term
- 2 Years
- Maximum loan term
- 4 Years
- Security required
- Various, Vehicle
- Other benefits
- -
- Other restrictions
- Application fee from $475 to $990. Additional Risk Fee of $0 to $995 applies.
Read our Mozo Review to learn more about the Jacaranda Finance Express Personal Loan
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Debt Consolidation Loan
interest rate
comparison rate
Monthly repayment6.57% p.a.to 18.99% p.a.7.19% p.a.to 19.39% p.a.based on $30,000
over 5 yearsCompetitive fixed rates on loans up to $75,000 depending on your credit score. Zero monthly account keeping fees, no exit fees and no early repayment fees. Make weekly, fortnightly or monthly repayments, over 1 to 7 years managed entirely online, at any time. Fast and easy, 100% online application.
Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.
CompareCompare- interest rate
- 6.57% p.a.to 18.99% p.a.
- comparison rate
- 7.19% p.a.to 19.39% p.a.based on $30,000
over 5 years
- interest rate
- 6.57% p.a.to 18.99% p.a.
- comparison rate
- 7.19% p.a.to 19.39% p.a.based on $30,000
over 5 years
- Upfront fee
- $250.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- -
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $75,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Upfront fees from $250.
-
Debt Consolidation Loan
interest rate
comparison rate
Monthly repayment5.76% p.a.to 24.03% p.a.6.57% p.a.to 24.99% p.a.based on $30,000
over 5 yearsRoll multiple debts into one loan to streamline your finances with one set of repayments and one interest rate. Competitive fixed interest rates with no monthly or early repayment fees and flexible repayment options. Easy online application and funding in as little as 24 hours (subject to approval).
Repayment terms from 3 years to 7 years. Representative example: a 5 year $30,000 loan at 5.76% would cost $35,173.52 including fees.
CompareCompare- interest rate
- 5.76% p.a.to 24.03% p.a.
- comparison rate
- 6.57% p.a.to 24.99% p.a.based on $30,000
over 5 years
- interest rate
- 5.76% p.a.to 24.03% p.a.
- comparison rate
- 6.57% p.a.to 24.99% p.a.based on $30,000
over 5 years
- Upfront fee
- $575.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- 0
- Minimum loan amount
- $2,000.00
- Maximum loan amount
- $70,000.00
- Minimum loan term
- 3 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- Establishment fee is $275 for loans under $5,000.
- Other restrictions
- -
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* 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
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