Having multiple debts to deal with can be all kinds of stressful. Not only do you have to think about which repayment needs to be paid and when, you could also be dealing with high interest rates that make clearing that debt seem almost impossible.

If you happen to be behind on your repayments, there is the added stress of having fees to cover and final reminder notices to deal with. If you don’t have the money to pay each and every repayment, you will have the added stress of working out which one should be dealt with first.

If debts are getting you down, debt consolidation could provide a solution. Allowing you to roll a number of existing debts into one new debt, debt consolidation is a type of loan that can provide relief when debt gets too much to handle.

By consolidating your debt, you will have one loan repayment to deal with and one repayment date to remember. Not only can debt consolidation reduce your stress levels by making it easier to deal with your debt, it can also give you a clearer picture of your future, allowing you to create a path to a debt-free life.

What is debt consolidation?

Debt consolidation can come in many forms. One popular debt consolidation option allows you to consolidate your debts yourself, by taking out a personal loan to pay off all your existing debts. As an alternative option, you could engage the services of a debt consolidation service.

With a personal loan, you simply transfer money from the new personal loan to pay off the debts you are struggling with, such as car loans, credit cards and other personal loans. Having paid off your debts, you will now only have one loan repayment, making it easier to budget, while taking the stress off.

Using a debt consolidation service, you pay someone else to do all that for you. Depending on the debt consolidation service you choose, they may offer to look at your current situation, to then recommend what you should do next. This may involve arranging loans and balance transfers, working out the best way to deal with your debt, within a given timeframe.

If you are in financial trouble with debt collectors at your door, the debt consolidation agency may act as an intermediary. This could involve reassuring your creditors, and potentially assisting with judgments, collection notices and clear outs.

Which option is best for you? The debt consolidation option that works best for you will depend on your situation, and how much effort you are willing to put in. There are pros and cons on each side. Which we’ll get into now.

What can debt consolidation do for you?

Paying off multiple debts is not uncommon. Perhaps you have a home loan and a car loan, and maybe a couple of credit cards as well. If you are coping with those debts, then debt consolidation probably hasn’t crossed your mind.

However, if you are struggling with your debts, debt consolidation could make life somewhat easier.

Case Study:

Jenny has three credit cards with balances of $3,000, $4,000 and $6,000. Each card has a different interest rate, and a different repayment date each month. Jenny feels overwhelmed and tends to only pay the minimum repayment for each card each month. She knows she has to do something. She is barely covering the interest and never seems to pay down her balance.

By using a personal loan calculator, Jenny finds a personal loan that fits her budget, covering the amount owing on all three credit cards. Jenny pays off the balance on each card and then closes them all. She then focuses on paying off her personal loan. She has chosen a personal loan option that allows for extra repayments, so she makes extra repayments when she can.


Debt consolidation is designed to help those who are struggling with debt. Multiple debts can be difficult to handle, especially those with high interest. Instead of working to pay off those debts, it can be all too easy to get bogged down with interest payments and late fees. By consolidating debts, it can make it easier to focus on paying them down.

However, debt consolidation is not just for people struggling with debt. It can also provide a way to save money. Credit cards, in particular, can become very expensive when the balance is not paid in full each month. But, by consolidating those credit card balances within a personal loan with a much lower interest rate, it’s possible to save money and pay off the debt faster.

Why choose debt consolidation?

Is debt consolidation for you? While debt consolidation is not for everyone, it can provide benefits within certain situations. Here are some of the reasons why you may want to consolidate your debts.

  • Reduce stress: After consolidating multiple debts, you will have only one repayment to worry about. You don’t need to think about which one needs to be paid first, which one has fees owing, and which one is accruing the most interest. There is just one loan and one repayment.
  • Reduce hassle: If you’ve been receiving final reminders and late payment fees on your debts, debt consolidation could help. Reducing hassle by paying off all your debts, you now have a clean slate, with just one loan repayment to keep on top of.
  • Save money: Having numerous high interest debts can sometimes make it feel like you are only paying off the interest, and never paying down the balance. By choosing the right debt consolidation loan, you could save on interest, to pay down that total balance faster.
  • Improve your credit rating: Taking out a debt consolidation loan will not improve your credit rating. However, if you treat that loan correctly, you could help to rebuild your credit over time. Instead of letting numerous debts lapse, adding more black marks to your credit file, a debt consolidation loan clears those debts, so you can concentrate on dealing with your credit better.
  • No other option: For some people, a debt consolidation loan is the end of the line. With no other option, debt consolidation can help them out of the hole they are in, paying off multiple debts that have gone bad. In these cases, it’s important to make sure the debt consolidation loan is indeed a better option, and is actually affordable.

What should you consider before consolidating your debts?

While debt consolidation can provide plenty of benefits, it can also can have drawbacks. Before choosing debt consolidation, you choose always consider exactly what’s on offer, to then work out if it is of benefit to you.

Will it cost you more in the long run?

When you apply for any type of loan, you need to look at how much the loan will cost you overall. It can be all too easy to sign up for a loan over a longer term because the repayments are lower. But, longer terms mean more interest. Because you are paying interest over a longer period, you will pay more on the loan overall.

By consolidating all your debts into one loan, it may make repayments more manageable, but you may be paying more in interest. If this is the only way to manage your debts, then this is something you will have to live with. But, if there is another, cheaper option, such as organising your existing debts so they are more manageable, it may be better to go with that.

Will you be in debt for longer?

By rolling all your debts into one debt consolidation loan, you are creating one big lump sum to pay off. To make that manageable, you may need to extend the loan, putting you in debt for longer than you would be otherwise. Again, if this is the only way you can manage your debts, then so be it. However, if you can make it work with a little re-organising of your finances, perhaps debt consolidation isn’t for you.

Can you afford the new loan?

It’s all very well consolidating your existing debts to create one larger debt, but if you can’t afford the repayments on that either, then it’s still not a great option. Compare all your debt consolidation options before signing anything – and don’t agree to anything that doesn’t put you in a better position than you were in before.

How much will debt consolidation cost?

If you opt for a personal loan as a debt consolidation option, be sure to check how much it costs in fees and interest. You may pay an establishment fee, as well as a monthly fee. There may also be other fees to factor in as well, such as late payment fees, extra repayment fees, and early exit fees.

If you choose a debt consolidation service, find out exactly what’s on offer – and how much it costs. While it may be boring, reading the small print is essential. Don’t be afraid to ask questions, and check out online reviews if they are available. Only sign with a company you trust, and if it sounds too good to be true, it probably is.

Using a personal loan calculator or debt consolidation calculator can help you assess your options and weigh up the pros and cons of debt consolidation. You may also want to check out what free help is available to you. You may have access to free financial counselling and free legal advice. If you feel like you have been unfairly treated, find out where you can go to report it.

Are there alternatives to debt consolidation?

If you are considering debt consolidation, you should also consider the alternatives to debt consolidation.

  • Apply for a balance transfer credit card: By transferring your existing credit card debt onto a card with a 0% balance transfer offer, you could save on interest while paying down your debt. This option works best when you close the old credit card account after paying it off (to reduce the temptation of spending more).
  • Switch home loans: You may be able to save money switching to a new home loan with lower interest and fewer fees. Be aware of the cost of switching, and make sure it’s worthwhile.
  • Talk to your credit provider: Discuss the issues you are having with your credit provider. They may be able to extend your loan or change your repayments.
  • Consider selling your home: Work out whether it would be beneficial for you to sell your home. This may be a better option for you than waiting for your lender to sell it as a mortgagee sale.

Weighing up the pros and cons to make the right choice

Time to weigh up the pros and cons? Before you decide whether debt consolidation is right for you, take a look at the potential pros and cons.


  • You could benefit from a lower interest rate on your debts.
  • You may be less stressed and feel better organised.
  • Your repayments could be easier to manage.
  • You would have a specified timeframe for getting out of debt.
  • You know exactly how much you have to pay out each month, instead of perhaps only making the minimum repayment.


  • You could end up deeper in debt, spending more on cleared credit cards after paying them off with your debt consolidation loan.
  • You could be in debt longer, after taking out an extended debt consolidation loan with lower than necessary repayments.
  • You could lose your home, if you secure your debt consolidation loan to your house and cannot cover the new repayments.
  • You could choose an untrustworthy debt consolidation service that charges too much in fees and doesn’t deliver.

Making the most of debt consolidation

If you’ve decided debt consolidation is right for you, be sure to do your homework to make it work in your favour.

  • Compare the interest rate, fees and charges: Compare how much the new loan will cost compared to what you are paying now.
  • Look at the length of the loan: Keeping in mind the affordability of the repayments, it’s best to choose the shortest possible loan term. Short term debts paid off over an extended period means paying more in interest and fees.
  • Do a background check: Ensure the credit provider you choose is licensed and operating legally. And of course, always read the small print.