Guidance

What is debt consolidation?

What is debt consolidation?

Debt consolidation can help reduce the stress of multiple debts and interest rates. We explain how it typically works.

Paying off more than one debt at a time is not uncommon. But if you’re struggling to balance your debt repayments, debt consolidation may well be worth considering.

Debt consolidation is bringing all your existing debts together into one new debt, which can help you manage your repayments and give you a clearer picture of your financial future. You typically do this by taking out a new personal loan to repay your other existing debts, and then paying this new loan back over a set term.

This process is also known as refinancing.

How does debt consolidation work?

If you have three different credit cards with debts of, for example, $3,000, $4,000 and $7,500, you’re likely to also have three different interest rates and to be making three different repayments at different times each month.

This can feel overwhelming and complicate managing your cash flow. The interest rate on one card may be significantly higher than the others – and if the highest rate is on the card with the $7,500 debt, you could be paying plenty each month just to cover the interest, let alone paying down the debt itself.

One option you have to consolidate your debts is to take out a single personal loan to pay off each credit card and any outstanding interest. With a personal loan you’ll have just one repayment to make every week, fortnight or month over a set term – you can usually choose your own frequency of repayments.

And if the interest rate on the personal loan is lower than your credit card rates – and they often can be – this can help you get ahead in reducing your overall debt.  

You can use a personal loan repayment calculator to work out exactly what your repayments will be.

Why would you consolidate?

To summarise, the key advantages of consolidating your debt are:

  • A potentially better (lower) interest rate
  • Repayments that are easier to manage
  • A means of providing a clear timeline outlining when you’ll be debt-free

Taking out a personal loan can also help with your budgeting. Instead of just having to make minimum repayments as you do on credit cards, you’ll have to make set repayments that cover both the loan amount and interest, which you know will end at a certain date.

You can choose to lock in your interest rate with a Fixed Rate Personal Loan, or enjoy the flexibility of making extra repayments and clearing your debt sooner with a Variable Rate Personal Loan.

Talk to us

If you would like to speak with someone before taking any steps to consolidate or refinance your debt, we’re here to help. Our personal loan experts are available to call any day during the week between 8am and 8pm Sydney/Melbourne time on 13 14 31. You can also visit your nearest CBA branch to speak with someone in person.

If, however, your financial situation is a little more pressing, you can call our Customer Assist Team on 1300 720 814 from 8am-9pm Sydney time Monday to Friday, and from 9am-2pm Sydney time on Saturday. You can also email at any time to customerassist@cba.com.au

Unsecured personal loan repayment terms range from 1 to 7 years. Interest rate ranges and representative examples are: Based on an unsecured loan of $30,000 borrowed for 5 years with the minimum interest rate of 13.9% p.a. (14.77% p.a. comparison rate), the estimated total amount payable including fees is $42,540; and with the maximum interest rate of 18.9% p.a. (19.74% p.a. comparison rate), the estimated total amount payable including fees is $47,344. WARNING: These comparison rates apply only to the examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.