Debt consolidation and refinancing

If you have more than one loan, it may sound like a good idea to roll them into one consolidated loan.

Debt consolidation (or refinancing) can make it easier to manage your repayments. But it may cost you more if the interest rate or fees (or both) are higher than before. You could also get deeper into debt if you get more credit, as it may tempt you to spend more.

Here are some things to consider before deciding to consolidate or refinance.

If you’re having trouble making repayments, there is help available. Contact your lender and talk to them about applying for financial hardship.

Avoid companies that make unrealistic promises

Some companies advertise that they can get you out of debt no matter how much you owe. This is unrealistic.

Don’t trust a company that:

  • is not licensed

  • asks you to sign blank documents

  • refuses to discuss repayments

  • rushes the transaction

  • won’t put all loan costs and the interest rate in writing before you sign

  • arranges a business loan when all you need is a basic consumer loan

Check the company is a member of the Australian Financial Complaints Authority (AFCA). This means you can make a complaint and get free, independent dispute resolution if needed. If they are not a member of AFCA, don’t deal with them. 

Make sure you will be paying less

Compare the interest rate for the new loan — as well as the fees and other costs — against your current loans. Make sure you can afford the new repayments.

If the new loan will be more expensive than your current loans, it may not be worth it.

Remember to check for other costs, such as:

  • penalties for paying off your original loans early

  • application fees, legal fees, valuation fees, and stamp duty. Some lenders charge these fees if the new loan is secured against your home or other assets

Beware of switching to a loan with a longer term. The interest rate may be lower, but you could pay more in interest and fees in the long run.

Protect your home or other assets

To get a lower interest rate, you might be considering turning your unsecured assets (such as credit cards or personal loans) into a single secured debt. For a secured debt, you put up an asset (such as your home or car) as security.

This means that if you can’t pay off the new loan, the home or car that you put up as security may be at risk. The lender can sell it to get back the money you borrowed.

Consider all your other options before using your home or other assets as security.

Consider your other options first

Before you pay a company to help you consolidate or refinance your debts:

Talk to your mortgage provider

If you’re struggling to pay your mortgage, talk to your mortgage provider (lender) as soon as possible.

All lenders have programs to help you in tough times. Ask to speak to their hardship team about a hardship variation. They may be able to change your loan terms, or reduce or pause your repayments for a while.

Consider switching home loans

A different home loan could save you money in interest and fees. But make sure it really is a better deal. See switching home loans.

Talk to your credit providers

If you have credit card debt or other loans, ask your credit provider if they can change your repayments or extend your loan. The National Debt Helpline website has information about how to negotiate payment terms.

Consider a credit card balance transfer

A balance transfer may be a good way to get on top of your debts. But it can also create more problems. See credit card balance transfers to help you choose wisely.

Get free professional advice

We can help you make a plan and negotiate with your mortgage or credit providers. Call us on 07 3202 2470.

Free legal advice is available at community legal centres and Legal Aid offices across Australia. If you’re facing legal action, contact them straight away.

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at

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