Should I roll my debts into one?

You might pay less in fees and interest charges if you consolidate your debts, but there'll still be things to look out for.

If all those small debts you once had, have somehow multiplied and grown into bigger debts, rolling them into one could reduce what you’re paying in fees and interest.

If you’ve heard about debt consolidation, but are wondering whether it’s the right option for you, we look at some of the positives and negatives so you can make an informed and educated decision.

What is debt consolidation?

Debt consolidation is where you take your existing debts—credit cards, personal loans, car loans or all of the above—and consolidate them into a single loan with a lower interest rate.

The benefits

  • If you can consolidate into a loan with a reduced interest rate and lower fees, you could save a significant amount of money, depending on what you owe 
  • A consolidated loan can be easier to manage as you’ll potentially only need to make one monthly repayment rather than having to juggle several 
  • As you’ll only receive statements from one lender, you can reduce the amount of paperwork involved, which could make budgeting each month a lot easier.

The traps to look out for

  • When looking at debt consolidation providers and products, ensure your provider is licenced by ASIC and their interest rates, fees and charges are lower that what you’re paying currently
  • If you extend the term of your loan and don’t focus on paying off the principal, be aware that you could end up paying more in interest over time
  • Also look into whether any application fees apply and whether there are penalties for paying off your loan early. After all, you want to ensure the potential savings outweigh any costs.

Other things to keep in mind:

  • Debt consolidation will only be effective if you’re disciplined about making repayments 
  • While you’re paying off the consolidated debt, you should try to avoid taking on any new debt
  • Once the debt is paid off, don’t fall back into old habits.

How to consolidate

Some people choose to use their home loan to consolidate their debt because it often offers a much lower interest rate, but it does mean risking your home if you can’t keep up with your repayments.

Other options include rolling your debts into a new personal loan, or credit card balance transfer.

Different options may provide different advantages and disadvantages depending on your own circumstances, which is why it’s really important to do your research first.

Where to go for assistance

Speak to your financial adviser about which type of debt consolidation strategy might suit your needs, or if you don’t have one call us on 131 267 or use our find an adviser tool.

You can also seek free financial counselling by ringing the National Debt Helpline on 1800 007 007.

Remember, taking action today is important as a bad credit report could affect your ability to get approval on loans in the future. If you’re not familiar with what might be on your credit report, check out our article - How your credit history could impact tomorrow’s borrowing plans.

Additional tools and resources

For further help on how to manage debt:

Debt reduction calculator

See how you can save money and pay your loan off more quickly by increasing your repayments on loans with higher interest rates. 

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.