Does consolidating debt really save you money?

When debt begins to pile up with multiple credit cards, personal loans, buy-now-pay-later services, it can quickly feel overwhelming. The stress of managing different interest rates, due dates, and repayment amounts can make it harder to stay in control of your finances.

For many Australians, debt consolidation offers a way to simplify their repayment strategy and, in some cases, save money. But is it always the right move?

What is debt consolidation?
Debt consolidation involves rolling several existing debts into a new single loan. Instead of managing five different repayments each month, you’re left with one repayment, one lender, and one interest rate. The goal is to reduce complexity, improve cash flow, and lower your total interest costs. For people juggling multiple debts with high interest rates, particularly credit cards, consolidation can be a helpful reset that also improves budgeting and long-term financial stability.

Why debt consolidation can save you money
One of the main advantages of consolidation is the ability to access a lower interest rate. A personal loan, for instance, may offer a smaller rate than a credit card, especially if you have a strong credit score. By locking in a lower rate, you may reduce the amount of interest paid over time, which will more than likely equate to significant savings, over the life of the loan.

Consolidation can also help you repay debt faster. With one fixed monthly repayment and a defined loan term, you have a clear end date, unlike revolving credit products where debt can linger for years.

There are psychological benefits, too. Managing one loan is far less stressful than keeping tabs on multiple lenders. It also reduces the risk of missed payments, which can damage your credit score. In fact, as long as you make your consolidated loan payments on time, your credit score may improve. That’s because lenders view on-time payments on a single loan more favourably than sporadic payments across several different debts.

When consolidation might not work
However, consolidating debt isn’t a guaranteed money-saver. One of the risks is extending the loan term. Some lenders may offer lower repayments by spreading the debt over more years, but this can mean paying more in interest over time, even with a lower rate. It’s important to compare the total cost of the new loan, not just the monthly repayment. You should also watch out for fees. Some lenders charge application or establishment fees on personal loans, and there may be early exit fees on your existing debts. These upfront costs can add up and potentially offset any savings.

The best thing to do is speak to a broker who can compare your options and let you know if debt consolidation is right for you.

Disclaimer: This is general information only and is subject to change at any given time. The content of this article is general in nature and is presented for informative purposes. Your complete financial situation will need to be assessed before acceptance of any proposal or product. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice