Debt Consolidation Loans

Consolidate smaller debts and pay them off more quickly using a personal loan, compared right here with Savvy.

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, updated on October 4th, 2023       

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What is a debt consolidation personal loan?

A debt consolidation loan is a type of personal loan designed to, as the name suggests, consolidate and manage multiple debts by bringing them under one singular payment. Personal loans are designed to be versatile in nature, meaning you’ll be able to use them to cover just about any debt you need.

Most people decide to take out a debt consolidation loan to make their various debt payments easier to organise and manage, with one payment essentially covering all of them rather than several repayments on different days across the month and at different frequencies. They’re especially useful if you have one or more high-interest debts, such as a high outstanding credit card balance, as paying them off with a personal loan can help you save money.

In most cases, these loans are unsecured, meaning you won’t be required to put forward any assets as collateral to back up the finance agreement. What this means is that these loans don’t put you at any level of risk of losing a valuable item such as your car if you end up struggling to cover your loan payments.

How does a debt consolidation personal loan works?

First and foremost, you’ll need to calculate what your total outstanding debts are to ensure you’re borrowing enough to cover them. Once you have this figure, you can apply for a personal loan matching that amount and, if approved, pay out all of those debts to your respective debtors. In their eyes, your debts have been repaid, meaning you won’t be at risk of any further pursuit of funds from them. With your loan taken out, you’ll only be required to make one payment per week, fortnight or month, rather than several.

It's important to have a clear grasp of how consolidating your debts can save you money both from month to month and overall across your term. Take the following example:

Rose is looking to consolidate her several outstanding debts into one payment. At the moment, she owes $10,000 on a four-year personal loan at 9.5% p.a., $7,500 on another personal loan over three years at 11% p.a. and two credit card debts: $5,000 at 18.5% p.a. and $2,500 at 20% p.a.

If she made the minimum repayments on these debts each month, she’d be paying around $650 per month and just under $50,000 overall. However, if she combined these debts into one $25,000 personal loan over five years at 9.5% p.a., she would only pay $525 per month and $31,502.79 in total.

*Please note that this calculation assumes minimum credit card repayments. Paying above the minimum each month is highly recommended to reduce the cost of your debt.

How should I compare debt consolidation loans?

There are many ways borrowers should look to compare different loan offers on the market. Because there are so many available today, it pays to be thorough throughout this process, as even the tiniest of differences could save you a significant amount of money overall. That’s why it’s important to compare with Savvy. We’re partnered with reputable lenders from around the country to help provide you with the highest quality comparisons so you can find yourself in the best position to confidently choose the right loan for your needs. The factors to compare include the following:

Interest rates

Interest rates are perhaps the most important aspect of personal loans to get right, as they’re the most significant influence on their overall cost. They’re very simple to compare, as most lenders position them very clearly on their loan offer pages. You should always aim to lock in the lowest possible rate to save you money overall. For instance, a $30,000 personal loan over five years at 8% p.a. would cost you just under $6,500 in interest. However, even picking a rate of 7% p.a. would reduce your interest bill by over $850.

Loan amounts

Not every lender will offer the same potential borrowing range on their loans. While they generally range from as little as $2,000 to $75,000 unsecured, some financiers will impose higher minimums of $5,000 or more, while many cap their loans at a maximum of $50,000. While it may not affect you if you’re looking at a $20,000 personal loan, for instance, it’s certainly worth considering if you want to borrow at the higher or lower end of the scale.

Term lengths

The same applies to the potential term lengths on offer; some lenders won’t offer the full range of one to seven years. Many will raise the minimum term to either two or three years, which can potentially lock you in for longer and force you to pay more in interest and fees as a result. On the other end of the scale, seven isn’t always the magic number, with financiers offering loans with repayment periods up to a maximum of five years.


In addition to interest, fees form an important part of the personal loan comparison process. You should strive to lock in a deal which will cost you less overall, as even small fees can mount up over time and set you back a significant amount. The main charges to consider when comparing different loan offers are:

  • Ongoing/monthly service fees: $0 to $10
  • Establishment fee: $0 to $595
  • Early repayment fee: depends on loan value and time remaining
  • Late payment fees: $15 to $35

Additional features

It’s important to also consider some of the key features which are included on different personal loans also. Perhaps the most important of these is repayment flexibility, or more specifically the ability to pay out your loan ahead of schedule without being charged a fee for doing so. Contributing above the minimum each month will reduce your outstanding debt at a faster rate and cut down on the interest and fees you’re liable to pay as a result. Other features include redraw facilities (which enable to withdraw these additional payments) and being able to choose between weekly, fortnightly or monthly payments.

Qualification criteria

There’s little point in spending time submitting an application for a loan if you aren’t actually eligible to be approved for it. That’s why it’s crucial to compare each lender’s criteria so you can be sure you’ll be able to qualify before you apply. Although different lenders will enforce different criteria, there are some basic points which are likely to apply across the board. These include:

  • You must be at least 18 years of age
  • You must be an Australian citizen or permanent resident (or an eligible visa holder in some cases)
  • You must be employed and working on a consistent basis
  • You must be earning a stable income (usually of at least $20,000 per year or more)
  • You must have a positive credit history
  • You mustn’t have any defaults, bankruptcies, Part 9 debt agreements or court judgments on your file

Types of personal loan

Why compare personal loans through Savvy?

How to apply for a debt consolidation loan

The pros and cons of a debt consolidation personal loan


Making your debts more manageable

By condensing all of your debts into one payment, you won’t have to worry about remembering to pay multiple debtors on differing schedules each month.

Saving money overall

If you’re using your loan to consolidate several high-interest debts, such as credit cards, you can secure a personal loan at a lower rate and save a significant amount overall.

No assets connected to your debt

There isn’t any need for you to attach your vehicle, home equity or savings as collateral for your finance deal, keeping your assets separate from the loan deal in case your situation changes.


Stretching out short-term debts

The flip side of paying off smaller debts in this manner is that, in many cases, you’d pay them off at a slower rate than you otherwise would’ve, which could actually cost you more overall.

Potentially higher interest rates

While personal loans tend to come with lower rates than credit cards, they may not offer lower interest than what you might have on an outstanding car loan, for instance.

Possible charges for paying out other loans

In some cases, you may be required to pay a fee as a means of releasing yourself from your existing loan contract early, which could cost you up to hundreds of dollars.

Frequently asked questions about debt consolidation

Do I need security for a debt consolidation loan?

No – these loans are unsecured, meaning you won’t be required to use an asset as collateral for the loan. This grants you more freedom to use the loan for a wider variety of purposes as well as ensure that, if you become unable to repay your loan for whatever reason, there won’t be any chance of you losing a valuable asset.

Can I use a debt consolidation loan to pay for other things?

Yes – your personal loan doesn’t just have to be used towards consolidating debts. You can ask for funds beyond your debt total for any number of purposes, such as for home improvements, purchasing a vehicle or simply for a quick getaway.

Are balance transfers a better option than personal loans for debt consolidation?

Probably not – balance transfers are made by moving the amount owed from one credit card to another. The advantage of doing this is that, if you’re able to repay your owed funds within their low or no interest period, you can save a substantial amount.

However, like any credit card, interest rates after this point are much higher than the standard personal loan, meaning any amount not paid within that period will accrue significant interest. If your debts are more substantial, a loan is likely to offer you a cheaper, more manageable option.

Are debt consolidation loans available to borrowers with bad credit?

Yes – we’re partnered with flexible lenders who can work with borrowers who have average to poor credit scores. Interest rates will be higher for these loans, as borrowers are deemed a greater risk compared to those with good credit ratings, and you generally won’t be able to borrow much more than $10,000. However, they’re likely to still cost less than letting each of your debts run its course.

If I have defaults on my file, can I access a personal loan?

Yes – although some lenders will require a clean record when it comes to defaults and bankruptcies, this isn’t the case with all of them. You can find a lender to suit your financial situation with Savvy today.

Am I able to consolidate debts between myself and my partner?

Yes – if you and your partner both have outstanding debts that you’d like to consolidate, you can do so on the same loan. Making a joint application with your partner is a great way to maximise your chances of approval and increase your overall borrowing power.

Helpful personal loan guides

Still looking for the right personal loan?

Personal loans come in all shapes and sizes, so read more about the ways you can use them, as well as how they might work for you.