Calculate whether consolidating your Australian debts into a single lower-rate loan saves money. Compare total interest with and without consolidation.
Consolidation Loan
| Metric | Before | After |
|---|
Debt consolidation combines multiple debts into a single loan at a lower interest rate, simplifying repayments and reducing total interest paid. The core benefit is rate arbitrage: replacing 20% credit card debt with a 10-12% personal loan saves significant interest over the repayment period.
The calculator above compares your current combined debt cost with a consolidation loan, showing total interest saved and the break-even point where savings exceed any consolidation costs.
| Debt | Current Balance | Current Rate | Monthly Payment |
|---|---|---|---|
| Credit card 1 | $8,000 | 20% | $200 |
| Credit card 2 | $5,000 | 18% | $150 |
| Personal loan | $7,000 | 14% | $200 |
| Total | $20,000 | Avg ~18% | $550 |
Consolidation option: $20,000 personal loan at 11% over 4 years = $517/month = total $24,816 = $4,816 in interest. Without consolidation: similar payment level takes longer and costs approximately $8,000+ in total interest at blended 18% rate.
The most common reason debt consolidation fails: people pay off credit cards with the consolidation loan, feel financial relief, and then spend on the now-clear cards — ending up with more total debt than before. The consolidation loan is still outstanding AND new card debt has accumulated. This is the most important behavioural risk to manage.
When does debt consolidation make sense?
Consolidation makes financial sense when: the new consolidation loan rate is meaningfully lower than your current blended debt rate; you can qualify for a competitive personal loan rate; you close and do not re-use the cleared credit cards; and you can repay the consolidation loan within a reasonable term (3-5 years).
What are the risks of debt consolidation?
Key risks: re-spending on cleared credit cards after consolidation (most common failure); extending the term so monthly payments are lower but total interest is higher; converting unsecured credit card debt to secured debt (e.g. adding to mortgage) which puts your home at risk; and consolidation loans with high fees or prepayment penalties.
Should I consolidate debt into my mortgage?
Rolling credit card debt into a home loan offers the lowest rate but converts unsecured debt to debt secured against your home. More importantly, spreading $15,000 in credit card debt over a 25-year mortgage means you pay far more total interest than clearing it in 3-4 years on a personal loan, even at a higher rate.