Struggling with Multiple Debts? You’re Not Alone
If you’re managing a credit card, a personal loan, a car payment, and a Afterpay balance simultaneously, you’re not alone. You’re probably spending more time and money on debt administration than you realise.
Australian household debt climbed to a record $3.33 trillion in June 2025.
More than a third of Australians are carrying credit card debt, while nearly a quarter are juggling buy-now-pay-later balances.
Debt consolidation is now the second most common reason Australians take out a personal loan, accounting for 29% of all personal loan purposes.
The appeal is obvious. But debt consolidation done without the right structure can leave you worse off – paying less per month while paying significantly more over time. This guide walks through what consolidation actually involves, when it makes sense, and what to watch out for.
What Is Debt Consolidation?
Debt consolidation is the process of combining multiple debts into a single loan or repayment structure. Instead of managing several repayments each month, you replace them with one.
The debts most commonly consolidated include credit cards, which often carry interest rates of 18–22%. Australians also commonly consolidate personal loans, car finance, buy-now-pay-later balances, and store cards. In some cases Australian’s also consolidate ATO tax debt. The more high-interest debt you’re carrying, the more potential there is for consolidation to reduce your overall interest costs.
In Australia, this is commonly done through either a personal loan, or a home loan refinance (for property owners).
Option 1: Personal Loan Debt Consolidation
A lender provides a new loan to pay out your existing debts. Those debts are closed and you repay the new loan as a single fixed repayment, usually over 2–7 years.
The average unsecured personal loan interest rate in Australia is currently 13.87% per annum. That’s significantly lower than the 18–22% most credit cards charge, which is why consolidating several cards into a single personal loan can reduce your interest costs meaningfully — even before your monthly cashflow simplifies. National Cover Insurance
This approach suits renters, non-homeowners, and people carrying smaller debt loads who don’t have home equity to draw on. The trade-off is that unsecured personal loan rates are still substantially higher than mortgage rates, so the savings are real but capped.
Our loan repayment calculator can help you model what a consolidation loan would cost monthly at different rates and terms.
Option 2: Mortgage Debt Consolidation (Refinancing)
For homeowners, rolling high-interest debt into a home loan is often the most financially impactful form of debt consolidation – but it also carries the most risk if not structured carefully.
The mechanics are straightforward: you refinance your existing mortgage, increase the loan amount using available equity, and use those funds to pay out your other debts. The result is one repayment at your home loan interest rate, which currently starts from around 5–6% for competitive variable loans.
Consolidating $30,000 of credit card debt at around 21% into a home loan at under 6% significantly reduces the annual interest on that balance – and on $50,000 of combined credit card and personal loan debt, the annual saving can routinely run into the thousands.
Refinancing for debt consolidation increased 47% in early 2026 compared to the same period in 2025, driven by borrowers consolidating credit card and personal loan debt into home loans at 5–6%.
The key question isn’t whether you’ll save on interest rate – you almost certainly will. The question is whether you’ll save on total interest paid, which is where loan term matters enormously.
The Trade-Off You Can’t Ignore
Here’s the issue that doesn’t get enough attention in most articles about debt consolidation: a lower interest rate doesn’t automatically mean you pay less.
If you roll $40,000 of credit card and personal loan debt into a home loan with 25 years remaining, you’re not just paying a lower rate on that debt — you’re paying interest on it for 25 years. The monthly repayment drops dramatically, but the total interest paid over the life of that debt can actually exceed what you would have paid clearing it at a higher rate over 3–5 years.
This is why the structure of the consolidation matters as much as the rate. The right approach for most homeowners is to either:
- Set up a separate loan split for the consolidated debt with a shorter term. Pay it down in line with what the original debts would have been, or
- Make additional repayments specifically targeting the consolidated portion
A mortgage broker can model both scenarios for you – showing total interest paid across each option, not just the monthly repayment figure. That comparison is what lets you make an informed decision rather than just chasing a lower bill each month.
Use our loan comparison calculator to compare scenarios side by side.
What About Borrowing Power?
This is a question worth asking before you start the process. Consolidating debt through a home loan refinance increases your loan size, which affects your loan-to-value ratio (LVR) and can influence the interest rate your lender offers.
It’s also worth knowing that lenders assess your borrowing capacity based on your total debt obligations, not just your mortgage. If you consolidate successfully and close the underlying accounts — credit cards especially — your borrowing power for future lending (like a renovation loan or an investment property) can actually improve, because those credit limits no longer count against your serviceability.
The reverse is also true: if you consolidate but leave accounts open with available credit, lenders will still factor those limits into their assessment. Closing the accounts you consolidate out of is a step many people skip, and it can undercut the benefit.
Check your current borrowing power to understand where you stand before and after a potential consolidation.
When Debt Consolidation Makes Sense — and When It Doesn’t
It tends to work well when you:
- Are managing multiple high-interest debts and the combined minimum repayments are straining your monthly budget.
- Hold sufficient equity in your home to access through refinancing.
- Have stable income and a clear plan to avoid accumulating the same debts again.
- Work with a broker to structure it correctly – not just moving the number from one place to another.
It’s less likely to help when:
- Using credit to cover ongoing living expenses, because consolidation won’t address the underlying cashflow shortfall.
- Experiencing genuine financial hardship or approaching insolvency, where a different type of support may be more appropriate.
- Being unable to close the accounts you consolidate, which increases the risk of building those debts back up again.
Debt consolidation is a structural tool, not a behaviour change. It works best alongside a realistic budget and a plan for what comes next.
What a Mortgage Broker Does That a Bank Won’t
Banks present their own products. A mortgage broker compares products across multiple lenders and structures the consolidation in a way that suits your actual situation.
For debt consolidation specifically, that means assessing your equity position, modelling the impact on your LVR and interest rate tier, structuring the loan split so the consolidated debt is paid down efficiently, and comparing the total interest paid across options – not just the monthly repayment.
It also means understanding the lender landscape. Some lenders are more flexible than others on debt consolidation refinances, particularly where the loan-to-value ratio increases. Access to a wide lender panel matters when you’re trying to find the right fit rather than the most obvious one.
At Ingram Financial, we work across a broad panel of lenders and take the time to model the numbers properly before recommending a structure. If you’re carrying significant high-interest debt and own property, the conversation is usually worth having – even if consolidation ultimately isn’t the right move for your situation.
Frequently Asked Questions
It depends on your situation. For homeowners with equity and multiple high-interest debts, consolidating into a home loan can reduce interest costs significantly. The key is structuring it so you’re paying the consolidated debt down quickly – not spreading it across the full remaining mortgage term.
Applying for new credit – whether a personal loan or a refinance – involves a credit enquiry, which can have a small short-term impact on your credit score. However, successfully consolidating and closing high-interest accounts, then making consistent repayments on the consolidated loan, tends to improve your credit profile over time.
Sometimes. If your existing lender allows you to increase your loan amount without a full refinance, this may be possible — but you’ll typically get a better outcome by comparing across multiple lenders rather than staying put.
Most lenders will allow you to borrow up to 80% of your property’s value without paying Lenders Mortgage Insurance (LMI). If consolidating your debts would push your loan above that threshold, LMI may apply – which adds to the cost and is worth factoring into your comparison.
Refinancing means replacing your existing home loan with a new one, often to get a better rate or different features. Debt consolidation through refinancing does both — it replaces your home loan and increases the loan amount to pay out other debts at the same time.
Want to Know If Consolidation Makes Sense for You?
The best way to find out is to run the numbers for your actual situation – your current debts, your interest rates, your equity position, and the total interest paid under different structures.
If you’d like to talk it through, get in touch with Shannon directly. Or start with our borrowing power calculator and loan comparison calculator to get a sense of the numbers before you call.
Need some help?
Not sure where to start? That’s exactly what we’re here for. Drop us a message and we will get back to you within one business day with clear, honest advice tailored to your situation.
