A debt consolidation loan can make a payment calendar simpler. It does not automatically make the debt cheaper. Compare both the repayment you must manage and the total you will pay from today until the debt ends.
Moneysmart warns that consolidation or refinancing can cost more when rates, fees or the time taken to repay increase. A lower rate with a longer term can reduce repayments while increasing total cost.
Compare the remaining debt, not the original loan
For each current account, collect a dated payout, remaining payments, interest basis, regular fees and exit charges. Fees paid years ago are not paid again by staying, so separate them from the decision about future payments.
For the proposed loan, record the amount used to clear debts, extra cash, financed fees, upfront fees, payment frequency, term and final payment. An offer including extra spending is not a like-for-like comparison.
A lower rate can still produce a higher total
This educational calculation uses hypothetical balances and rates, not an advertised loan. Assume $20,000 remains, monthly payments, interest at the assumed annual rate divided by twelve, and no balloon or ongoing fees:
- Stay: 12% assumed annual interest, 24 months remaining. Calculated monthly payment about $941.47; total remaining payments about $22,595.27.
- Replace: 8% assumed annual interest, 60 months. Calculated monthly payment about $405.53; loan payments about $24,331.67.
- Add an assumed $500 new fee paid upfront. Total replacement cost becomes about $24,831.67.
The replacement lowers the monthly payment by about $535.94 but raises total remaining outlay by about $2,236.41. Totals use unrounded instalments; a real schedule would adjust the final payment for rounding.
If the hypothetical replacement instead ran for 24 months, loan payments would total about $21,709.10, or $22,209.10 with the fee. Term changes the result substantially. Replace every assumption with your actual payout and written schedule.
Check what security is being added
Moneysmart warns that moving unsecured debts into a loan secured against a home or car puts that asset at risk if repayments cannot be made. Record security and guarantees alongside the dollars.
Ask how old accounts are paid out and whether revolving accounts remain open. A zero balance is different from closure. Keep payout and closure confirmations as separate records.
Decide what problem the new loan solves
If you need repayment relief, compare that benefit with the longer commitment and total cost. If repayments are already unmanageable, Moneysmart's guide links to financial counselling and alternatives.
Our personal loans guide covers product features. The repayment calculation guide explains the mechanics in a car-loan context. For consolidation, keep existing payout evidence and the proposed schedule on the same page.
