Debt consolidation loans: how they work and what to check

Last updated 3 November 2026 · Reviewed by 360 Asset Finance Compliance

How does a debt consolidation loan work?

You take out one new loan for enough to cover the debts you want to combine. The new loan pays those debts out, either by paying the other lenders directly or by paying the funds to you to pay them out. From then on you make one regular repayment to the new lender, instead of several repayments to different lenders on different dates.

Debt consolidation loans are usually unsecured personal loans, because there's no single asset being bought that could be used as security.

What debts can I consolidate?

It depends on the lender, but people often look at combining:

• credit cards and store cards
• other personal loans
• buy now, pay later balances.

Your broker can tell you which debts a lender is willing to include.

Will consolidating my debts save me money?

Not always. One repayment can be easier to manage, but a longer term can mean paying more interest overall. To see whether it works for you, compare:

• the total you'd repay on your current debts if you kept paying them as you are
• the total you'd repay on the new loan, including interest and all fees
• any fees to close your existing debts early
• the set-up and ongoing fees on the new loan
• the term of the new loan, because a longer term lowers each repayment but can mean paying more interest overall.

We explain the rate, fees and total cost before you decide, so you know what you're committing to.

What should I check before I apply?

• The purpose: be clear about which debts the loan will pay out, and get up-to-date payout figures from each lender.
• The repayment: make sure the new repayment fits your budget, with room for unexpected costs.
• Early repayment terms: check whether the new loan lets you make extra repayments or pay it off early, and whether there's a fee.
• Your credit report: applications for credit are recorded on your credit report, so it's worth comparing options before you apply rather than applying with several lenders.

How do I stop the debt building up again?

Consolidation works best when it's part of a plan. It also helps to stop using the cards or accounts you've paid off, so the debt doesn't build up again. Some people close those cards or ask for a lower limit. A simple budget can help you stay on top of the new repayment.

What if I'm already struggling with repayments?

A new loan isn't always the answer, and it won't suit everyone. If you're having trouble keeping up, contact your current lenders as early as you can. You can ask for help under their hardship arrangements. Free, confidential help is also available from financial counsellors through the National Debt Helpline.

Be careful of businesses that charge a fee to fix debt problems or promise to clear your debts. Check who you're dealing with, and that they hold the right licence, before you sign anything.

What checks does the broker do?

Personal loans, including debt consolidation loans, are regulated credit, so responsible lending rules apply. We ask about your goals, income and expenses, and check that any loan we suggest meets your needs and that you can afford the repayments. We won't suggest a loan that doesn't meet your needs or that you can't afford to repay. The lender will then assess your application against its criteria and decide whether to approve it.

FAQs

General information only. It doesn't take into account your objectives, financial situation or needs, and it isn't credit, tax or legal advice. Finance is provided by the lender you choose and is subject to its lending criteria; fees and charges apply. 360 Asset Finance is a trading name of Kuone Consulting Pty Ltd (ABN 75 647 329 002), Australian Credit Licence 566705.