Consolidating your debts into one loan can give you a clearer picture of what you owe and hopefully save you money too. 

Small debts may not seem significant, but having multiple smaller debts could mean you pay higher interest rates and multiple sets of fees, all of which can hit your hip pocket.

A consolidated loan can be easier to manage as you’ll potentially only need to make one monthly repayment rather than multiple loan repayments, and reduced paperwork as a result. If you’ve been wondering "how can I consolidate my debt?", then consider these three easy steps.

Get up to speed with your debts

Start by understanding exactly what you owe and how much it's costing you.

  • How much do you owe on each debt and what do they all add up to?
  • How much interest are you paying for each debt?
  • How long have you got to pay your debts off?
  • What are the extra fees and charges you’re paying because you have multiple debts?

Think about the best way to consolidate your debt

Converting your debts into one loan could help make your debt more manageable. And you'll potentially save money by moving your debt to a lower interest rate loan and paying just one set of fees. 

If you already have a home loan, one approach could be to put your home loan at the centre of your finances by consolidating all your debt and savings into your home loan. This can help reduce your short-term debt burden, because compared to a home loan:

  • most credit card interest will be charged at higher rates
  • most personal loans will be charged at higher rates
  • any money sitting in transaction or savings accounts is likely to be earning lower interest rates than those being charged on your home loan interest rate.

You could take advantage of new lower repayments over a period or maintain the higher repayments and pay off your loan sooner.

Focus on clearing debt

You will need to be disciplined about paying off your debt. If you extend the term of your loan and don’t focus on paying off the principal, you could end up being charged more interest over time.

While trying to pay off the consolidated debt, try to avoid taking on any new debt. Having a good understanding of the different types of debt will help you manage it so it works for you. In this two-minute video, a simple case study offers tips on how to clear debt.

Case study: Meet Craig and Samantha

Craig and Samantha are both in their mid-30s, earning good salaries and have been married for four years.

Now they’ve gotten used to living with a home loan, they’re ready to put a big dent in it. Here’s their situation:

  • they have an outstanding home loan of $350,000 (20-year term, 5.95% pa interest rate)
  • they also have combined credit and charge card debts of $12,000 (interest rate 19.55% pa) and a personal loan of $15,000 (5-year term, 14.3% pa interest rate)
  • they currently pay a minimum monthly payment of $240 on their credit and charge cards.

As their situation currently stands, they are making repayments of $3,088 per month across all their loans.


Craig and Samantha speak to their financial adviser about how to consolidate all these loans. They agree to increase the balance of their home loan to $377,000 and use the additional funds to pay off in full their combined credit cards, charge cards and personal loan.

Consolidating their higher interest rate personal loan and credit cards into their lower interest rate home loan means they reduce their total monthly loan repayments by $398.70. If they put those savings into their home loan by keeping total monthly payments at $3,088.78, they will reduce their loan term from 20 years to 15 years and 8 months. This will save them $65,290 in interest and mean they will have paid off their home loan by the time they’re 50, giving them a lot more freedom to build their retirement savings.

Before consolidation

   Total debt  Interest rate Payments per month
Home loan $350,000 5.95% pa $2,497.42
Credit & charge cards $12,000 19.55% pa $240.00
Personal loan $15,000 14.30% pa $351.36
 Total  $377,000   $3,088.78

After consolidation

   Total debt  Interest rate Payments per month
 Home loan  $377,000  5.95% pa $2,690.08
Credit & charge cards $0.00 0% $0.00
Personal loan  $0.00 0% $0.00
Total     $2,690.08
Savings   $398.70  

Of course, there are factors that could affect this strategy – such as unexpected changes in interest rates. But you can see that Craig and Samantha’s consolidation strategy would provide a substantial monthly saving – one they could use to eliminate their debt sooner or free up funds for other investments. Please note: this case study is based on a typical situation to show the benefits of an effective debt consolidation strategy.

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