Debt Consolidation - what are the options?

Australian Government statistics indicate that the average credit card debt being carried by each Australian is $4,400, which amounts to a total personal debt level in Australia of $32 billion.  So if you have some personal debt you are not alone, and there are ways to escape it and get you back to a better financial position. 

The process of debt consolidation is designed to help you better manage your debts and provide structure to how you approach repaying the debts. In simple terms debt consolidation is where you refinance your debt with a single provider who charges a lower interest rate to cut your interest charges. The four most popular debt consolidation approaches are:

  1. Personal Loan - Consolidate your credit card debts into one personal loan, with a fixed term.
  2. 0% Balance Transfer Credit Card - Transfer your debt onto a credit card offering 0% p.a. balance transfer rate.
  3. Mortgage - Incorporate the debts into your mortgage and increase your regular repayments.
  4. Personal Loan Transfer - Transfer your Personal Loan debt to a 0% p.a. Balance Transfer Credit Card.


1. Consolidate your credit card debts into a personal loan.

Consolidating debts into a personal loan is popular when you want a fixed term over which to clear the debt, something credit cards don’t have and which is often the reason why the debt has been accumulated. Personal loans will also generally deliver a more competitive rate of interest on your debt than those you are currently suffering on your credit and store cards.

An example of the interest savings from debt consolidation to a personal loan

Credit Type Total Debt Interest rate Monthly Repayment Interest Cost
Credit Card $8,500 19.5 % p.a. $200 $6,057 payable over 6 Years and 1 month
Unsecured Personal Loan on a 5 year term $8,500 12% p.a. $223 $2,846 pyable over 5 years and equating to savings of $3,211


This example, where a credit card debt is consolidated into an unsecured personal loan results in interest savings of $3,211. 


2. Consolidate you debt onto a 0% p.a. balance transfer credit

With well over 50% of new credit card applications including a Balance Transfer it’s clear that these are a popular option when consolidating credit and store card debts. These deals offer new customers a 0% p.a. rate on the debt they transfer to the new credit card, with this promotional balance transfer rate lasting for between 6 and 24 months. Once this period ends the rate applied to any debt you still have not paid off will switch to what is called the revert rate, which will generally be either the purchase rate or cash advance rate of the card, but either way the rate will be significantly higher than the 0% promotional rate. To maximize the savings from making a balance transfer your focus should be on repaying the total balance transferred before the end of the balance transfer period.

Credit Type Total Debt Interest rate Monthly Repayment Interest Cost
Credit Card $8,500 20% p.a. $550 $1,700 over 12 months
0% p.a. Balance Transfer Credit Card $8,500 0% p.a. $708 $0 over 12 months, equating to a saving of interest charges of $1,700


This example, where a credit card debt is consolidated onto a 0% Balance Transfer Credit results in interest savings of $1,700, though the monthly repayment amount rises to $708 to achieve a no debt position at the close of the balance transfer period. To work out the savings you could make by conslidating your credit card debt onto a 0% Balance Transfer card try our Balance Transfer Saving Calculator.


3. Consolidate your debts onto your mortgage

Mortgage holders who have built equity up in their home may have the option to incorporate personal debts onto their mortgage which will generally offer a lower rate of interest than other forms of debt such as store or credit cards. The key to maximizing the interest savings from this approach is to increase the repayments on your mortgage, in proportion to the amount of debt you choose to transfer.


4. Consolidating a Personal loan debt with a Personal Loan Transfer

A limited number of 0% p.a. Balance Transfer Credit cards will accept personal loan transfers and deliver significant interest savings. Currently Citi and Virgin Money are the credit Card issuers who will accept these personal loan transfers. The net impact of making a personal loan transfer to a 0% Balance Transfer Credit Card is that you reduce your interest charges to $0 for the balance transfer period buying you time and freeing up cash to pay off the debt.