Debt consolidation and refinancing: how to free yourself from debt


Between credit cards, personal loans, home loans and car loans, Aussies have many options open to them when it comes to borrowing money to reach their goals. But while this can be a useful tool, it can also lead to a mound of debt for spenders who don’t manage their credit properly.

“Taking on debt isn’t always a bad thing - for example when buying a first home it may be the best or only option to get into the market,” points out Mozo Director Kirsty Lamont.

“But sometimes, debt can get out of control, and it’s often hard to see a way out when you get stuck in that spiral. The good news is, there are plenty of things you can do yourself, and places you can turn for help.”

In this debt consolidation and refinancing guide, we’ve broken down some facts and figures on Australia’s debt situation, strategies for managing your debt and where to go to get assistance.

Key points

  • Nearly half of Aussies have credit card debt, and more than a third of that number are using credit to pay for everyday necessities.
  • There are multiple options for managing debt, depending on the kind of debt and your situation
  • Debt consolidation loans have an average rate 5.47% lower than the average credit card

Australia’s debt habits

When it comes to our finances, many Aussies are pretty switched on. But there are some people who admit to some less than stellar money habits, including 21.9% of people who admit they don’t have a financial buffer in case of emergency, 18.9% who don’t have a budget and 12.2% who cop to spending more than they earn.

Those habits leave nearly a quarter of Aussies with debt on their credit cards, and 11.5% struggling to stay on top of debt repayments. We’ve broken down how and why Aussies wind up with debt below, using credit card debt as an example.

Spotlight on: credit card debt

Mozo recently did some research into Australia’s credit card debt and found that just over half of Aussies have racked up debt on their credit card.

“The good news is, a large chunk of the Ausies carrying credit card debt have only done so for a short while, with 17.3% having had debt for less than 6 months,” says Lamont.

“Another 9.5% of people are in a more dire situation, however, with a credit card balance over a decade old.”

Do you have credit card debt? How long has it stuck around?

The reasons Aussies build up credit card debt

So how do we wind up with a lingering balance on our card? Mozo’s research found that the most common way Aussies spenders racked up debt on their plastic was simply buying daily necessities. Almost as common was paying for big ticket items like travel or a new laptop or small luxuries, like clothes, entertainment or shoes.

How did you build up a credit card balance?

Barriers to paying off credit card debt

Nobody wants to carry a credit card balance - so what’s stopping us clearing that debt away once and for all?

The major reason is that Aussies simply can’t afford to pay off their debt. Others have prioritised other uses for their money first.

“While there are some things that might be more important than paying down your debt - like paying rent, keeping food on the table, or paying school fees - clearing debt should definitely be a goal,” says Lamont.

“It’s worth tightening the belt wherever you can and swearing off splurges until you’re debt free, because carrying a credit card balance is a very expensive habit in the long run.”

When Aussies plan to pay off an outstanding balance

Even if you have debt at the moment, our research shows that there’s a good chance you have a plan to get rid of it soon. More than half of those carrying a balance planned to pay it off in the next 6 months.

When are you planning to pay off your credit card debt?“It’s great that Aussies are keen to blast away their credit card debt, but it’s not enough to say you’re going to do it - it’s important to start taking concrete steps toward being debt free, whether that’s putting a stricter budget in place, or contacting your bank for help,” adds Lamont.

And for the 3.6% of Aussies who aren’t holding out hopes of ever clearing their balances, don’t panic! We’re about to break down some of the ways you can tackle your debt.

Strategies for blasting debt

If you’re trying to wrangle debt, there are a few things you can do to make it easier for yourself - and ignoring the problem is not one of them!

“Sticking your head in the sand isn’t going to help at all when it comes to debt,” says Lamont.

“In fact, the problem will almost certainly get worse that way. So finding a strategy to get control over your finances should be top priority.”

Here are three of the major options for refinancing or consolidating your debt in order to pay it off quicker or save on interest and ultimately get you debt free.

Use a balance transfer card

If you’ve simply got a niggling credit card balance to clear, a balance transfer allows you to switch existing credit card debt onto a new card which has an interest free or low interest period to help you get on top of repayments.

  • You’ll get a period, usually between 6 and 24 months in which to work on clearing your debt while paying little or no interest
  • Not having set monthly repayments may be handy if your income isn’t regular. You can pay a large chunk off when you have the money, and less when you don’t.
  • Sometimes, balance transfers come with a fee, usually of 1-3% of the balance you’re transferring.
  • When the interest free period ends, any debt you haven’t paid off will start to attract interest at the revert rate - which is often the same as the cash advance rate on the card, and can often be as high as 21.99%.
  • It’s up to you to make sure you pay off your debt in time. Except the minimum repayment (which is not designed to clear your debt) there’s no set repayment on a credit card like there is for a loan, so you’ll need to crunch the numbers on your debt repayment plan, and be responsible for sticking to it.

When it’s a good idea

If you’re only dealing with a credit card balance (or two) and not personal loan debt, a balance transfer may be the answer. It’s most effective for smaller balances which you’ll be able to pay off within a couple of years. But you do need to have an airtight plan to pay off your debt within the balance transfer period, and be disciplined enough to stick to it.

Think a balance transfer card is what you need? There are heaps of options out there, so head over to our balance transfer comparison table to find one that suits you.

Refinance your home loan

Another option is to refinance your home loan and wrap all your other debts up into it when you do.


  • You’ll be paying off your debt at your home loan rate, which is usually a lot lower than that on personal loans or credit cards, so your monthly repayments will go down
  • You’ll get all the benefits of a home loan, which can include features like free extra repayments, offset account and flexible repayment options.
  • You’ll only have to worry about making a single loan repayment each month
  • The big drawback is that your debt will be spread over a longer loan term, usually 25 or 30 years for the average home loan. Because of this, you’ll wind up paying more in interest over the life of your loan (we’ll explain this in an example below.)
  • If your Loan to Value Ratio is higher than 80% (meaning you had less than a 20% deposit to buy your home) you'll usually have to pay Lender’s Mortgage Insurance, which can be thousands of dollars. If you refinance your home loan in order to wrap other debts up into it, you may have to pay for this insurance again if your LVR is still higher than 80%.
  • When you close old personal loans or car loans, you may wind up paying a break fee. Factor this into your budget.

When it’s a good idea
This option allows you to lower your monthly repayments considerably, but will cost you more in the long run, so it’s best suited to people who need some more breathing room in their day to day budget.

Check out the example below to see how it could affect your interest payments:

Paying off your debt: before and after refinancingSo in the example above, although consolidating your debts leaves you with only one repayment to handle and saves you about $800 each month in the short term, because you’re in debt over a longer period, you’ll ultimately pay $12,507 more in interest.

“The key to making this technique work is to keep making higher repayments if you can, to get rid of the extra debt quicker. If you know you’ve added $20,000 to your home loan, try to make extra repayments to knock that much off your loan amount as early as possible,” says Lamont.

And, obviously, you’ll need to have a home loan to make this work.

Take out a debt consolidation loan

Finally, you an tackle your debt by taking out a separate personal loan which allows you to combine all your different debts and instead just pay off a single loan.

  • On average, the interest rate on a debt consolidation loan is 5.47% lower than the average credit card.
  • Debt consolidation loans come with shorter loan terms from 1-7 years, which avoids prolonging your debt, saving you interest in the long run when compared to the strategy above.
  • If your credit score has suffered under all your debt, a consolidation loan is a great way to rebuild a good credit rating - as long as you stick to the repayments and pay the loan off, that’ll be a big green tick on your history!
  • You’ll sometimes have to pay an application or set up fee when applying for a debt consolidation loan
  • Compared with the other two options we’ve outlined here, this one will often come with the highest interest rate - there’s no low interest period like a balance transfer card, and personal loan rates are usually higher than home loan rates. Having said that, it’s not necessarily the most expensive option - you’ll have to crunch the numbers carefully before choosing an option!

When it’s a good idea 

A debt consolidation loan is a good strategy for when you have multiple debts and would like to roll them into one easy to manage repayment. If you’ve got different types of debt - credit cards, personal loans and car loans for example - then you can roll all of these into a debt consolidation loan.

Find a debt consolidation loan

If you’re ready to get a handle on your debt, check out these debt consolidation loans.

Harmoney Unsecured Personal Loan

Online lender Harmoney is helping you blast debt with a fixed rate unsecured personal loan option that will allow you to borrow up to $70,000 with no monthly fee to worry about.

Read more about the Harmoney Unsecured Personal Loan.

Ratesetter Unsecured Personal Loan

Borrow up to $45,000 with the Ratesetter Unsecured Personal Loan, over a term of 1 - 5 years. You’ll pay no ongoing service fee, and your rate is tailored to your credit score.

Check out the details about the RateSetter Unsecured Personal Loan.

ANZ Unsecured Personal Loan

Prefer to stick with a big bank? With the ANZ Unsecured Personal Loan, you can borrow up to $50,000 over a term of 1-7 years. There are both fixed and variable rate options on offer.

Find out more about the ANZ Unsecured Personal Loan.

If these aren’t the perfect fit for your needs, you can also check out more debt consolidation loans in our comparison table that might suit you better.

Where to go for help with debt management

Everyone needs a helping hand sometimes. Although we’ve outlined ways to blast debt above, here’s what to do if you need a hand getting started.

Do what you can on your own. 

The debt blasting strategies above all have one thing in common - they only treat the symptoms of your situation, not the root cause. Even if you clear all your debt, if you’re still overspending, not budgeting effectively or don’t have plans for how to better prioritise your income, chances are you’ll wind up back at square one. So before you do anything else, take responsibility for your finances and take a long hard look at how you can change your habits to solve your current debt problems - and prevent future ones!

Bank hardship program. 

The first port of call if you’re struggling to meet repayments and have done all you can to get a handle on the situation should be your lender. They have hardship programs in place to help you manage your debt by granting you a lower interest rate, an interest free period or by extending your loan to lower repayments. How they can help will depend on your personal situation, so get in touch to talk - and remember, the sooner you start with this, the better.

National debt helpline

This is an Aussie not for profit that provides free financial counselling for people who have found themselves in strife. You can find advice on the website, or give them a call and a trained financial counsellor can give you advice to help get you back on track.

Professional budgeting services. 

Similar to the National Debt Helpline, a professional budgeting service is a paid service to help you clear debt and get your finances sorted out. They can usually do things like set out a budget for you and negotiate with your providers for better deals.

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