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Debt consolidation rolls several debts into one loan, usually at a lower interest rate and with a single repayment. The appeal is obvious: credit cards at 20% and personal loans at 12% replaced by one loan at 8%. The trap is equally simple and far less obvious — a lower rate over a longer term can cost more in total interest.
Take $30,000 of card debt at 20% that you're clearing in 3 years: repayments are about $1,115 a month and total interest is roughly $10,100. Consolidate it into a 7-year personal loan at 9% and the repayment drops to about $483 a month — a genuine relief in monthly cash flow — but total interest becomes roughly $10,600. The rate more than halved, and you still paid more, because the debt was outstanding for more than twice as long.
Consolidating into your home loan brings the rate down further still, often to 6%, but stretches the debt across up to 30 years and converts unsecured debt into debt secured against your home. $30,000 added to a 30-year mortgage at 6% costs about $34,700 in interest over the full term — and if you can't pay, the consequence is now your house rather than a default listing. The fix is to keep the old repayment amount rather than the new lower one, so the consolidated balance clears at the old pace.
Consolidation only works if the freed-up credit stays unused. The common failure pattern is clearing cards with a loan and then re-accumulating card balances, leaving you with both. Closing the accounts as they're paid out is what turns consolidation from a breathing space into an actual exit.
Does consolidating hurt my credit score? There's usually a short-term dip from the new application and closed accounts, but consistent on-time repayments on a single loan often help over time.
What fees apply? Watch for establishment fees on the new loan, early-repayment or break costs on the old ones, and ongoing monthly account fees that erode the rate saving.
Is a balance transfer better? For smaller card debts a 0% balance-transfer period can beat consolidation — but only if you clear the balance before the promotional rate ends, since the revert rate is typically high.
This calculator uses current published rates from Australian government and regulator sources. The result is an estimate for general guidance — it does not constitute personal financial advice. For decisions about your circumstances, consult a registered financial adviser, tax agent, or other professional. See editorial standards for how DecisionLab sources and updates its calculator data.