Personal Loans

How To Consolidate Debt

Written by:

Jamie Coleborn


February 4, 2021

Last updated

June 6, 2023

Reading time

5 minutes

Jamie Coleborn

Debt can be stressful at times. If it feels like your loans and credit cards are getting out of control, don’t panic. There are several ways to keep your head above water, one of which could include debt consolidation. Consolidating your debt can allow you to better manage your repayments and save money on interest in the long run.

Below, we’ve put together a step-by-step guide on how to consolidate debt.

What is debt consolidation?

Debt consolidation is a process that allows you to combine existing debts, like personal loans, credit cards, and car loans into one loan, with one repayment and one interest rate. You can combine loans or cards from a range of different lenders into one product, to help you budget, save money, and pay off your debts quicker.

How to consolidate debt

Step 1: Make a list of all your debts

First off, you need to lay out all your debts on the table. This includes personal loans, car loans, credit cards, small-term loans, other payments, or lines of credit you have taken out. Leave out things like buy now pay later (BNPL) schemes and HECS/HELP debt — they are a different kettle of fish.

It helps at this stage to organise your debts in a certain order. The two most common ways to do this is to rank your debts from highest to lowest in regards to interest rate or balance. Depending on your current situation you could snowball your current debts into an existing loan that has the lowest interest rate or you could take out a new loan.

Step 2: Choose a consolidation product

If you choose to take out a new loan or credit card to consolidate debt, there are three main options available — personal loan, balance transfer, and mortgage. We give a rundown of each below:

Personal Loan

A personal loan is one of the most popular ways to consolidate debt. Through either your current lender or a new one, you can bring your personal loans and car loans together under one new loan. By consolidating your debts in this way you can save money on interest. Plus, it can help you manage your finances better as it only involves one repayment a month as opposed to several.

Balance Transfer

Is your wallet full to the brim with credit cards? Save money, interest, and space in your bag by moving over all your credit card debts into one with a balance transfer. Most banks and credit providers have promotions to encourage people to transfer their existing credit cards to them by offering low or no-interest rate periods. While these can be great, make sure you can pay off the balance within the promotional period. This is because once it’s over, the rates typically shoot through the roof and are sometimes even higher than what you were paying initially.

Balance transfer cards as a way to consolidate debt could allow you to better manage your repayments and organise your budget.


Do you already have a mortgage? If so, you may be able to roll your other debts into your mortgage repayments. One of the benefits of doing this is that mortgages typically have lower interest rates than other lending options, so it’s an easy way to lock in a lower rate for longer.

Plus, it could be a great way to budget. By having your mortgage repayments cover your other regular payments, it could make it much easier to divide up the rest of your pay. The downside would be that it can extend the length of your other loans. So, it’s up to you whether it’s worth paying off your car longer than you intended to.

Step 3: Determine what you would like to pay, and how often


Before you figure out how to best consolidate your debts, have a look at your budget as a whole. Make a list of all your expenses, whether they are weekly, fortnightly, or monthly. These expenses can include rent/mortgage repayments, bills, petrol, and other general living costs. Plus, take into consideration extra one-off expenses and how much you want to save. Add all your expenses up and subtract them from your income — this will tell you how much money you have left to play with. It is then up to you how much you want to dedicate to your repayments.


Once you’ve sorted out your budget, you can see how much you have left for repayments. The minimum repayment you will be required to pay will depend on the lender you choose as well as the length of the loan. Some lenders might also let you choose how often you pay, whether it’s weekly, fortnightly or monthly, depending on your financial needs.

Interest Rates

Then thirdly, of course, is interest rates. These vary greatly depending on what type of consolidation you are doing, your provider, repayment schedule, and several other factors. Typically the lower interest rate, the better. But this is not always the case. Make sure to read the fine print about when the rate is subject to change. All the information related to interest rates should be available on your provider’s website or you can talk to their customer service team.

Step 4: Find the right lender

Do they offer products that fit your needs?

Once you’ve decided how to consolidate your debts, the next step is to find the right product for you. We recommend making a list to compare the most important variables for you, such as interest rates or repayment schedule. When you go to apply for your loan or card, make sure you are confident in what you want, and explain everything you need when applying in-branch or over the phone.

Rates and fees

It’s important to check the fees and costs of every new loan, policy, or credit card you take out. These vary from lender to lender but they could include administrative fees, monthly, or yearly fees. There can also be fees and charges included for paying off a loan early or exiting a contract.

Choosing the right provider for you

There are many debt consolidation providers out there, so it’s important to choose the right one for you. A good idea is to talk to the provider’s customer service team to ask any questions you have. Plus, check their Product Disclosure Statement (PDS) to find out everything you need to know.

Want to know more?

At NODDLE, we’re all about encouraging people to take control of their finances and provide the resources they need to make better financial decisions. Make sure to check out our other articles where we talk about superannuation, car insurance, savings, and plenty more.

NODDLE is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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