How Australians Can Use Debt Consolidation Loans to Save on Interest in 2025

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CashPal TeamLast updated 9 July 2025

Using debt consolidation to save on interest

Managing several loans is difficult when you’re balancing different interest rates, minimum repayments and payment deadlines. For the 5.8 million Australians who’ve had difficulty repaying debts in the past 12 months, debt consolidation may provide relief — combining several loans into one, ideally at a cheaper rate, potentially saving thousands in interest over time.

How Australians Can Use Debt Consolidation Loans to Save on Interest in 2025

The Australian debt landscape

The average Australian carries $24,199 in personal debt across credit cards, personal loans, buy-now-pay-later plans and other consumer debt. With credit card rates frequently surpassing 20% per year, many households are caught making minimum payments that barely dent the principal. 2025 is a sensible year to consider consolidation: personal loan rates have levelled out, and many lenders are courting customers who want to combine high-interest debt at cheaper rates, with preference for borrowers with good credit and steady income.

How debt consolidation works in practice

You take out a new loan to pay off existing debts — usually at a lower rate with a fixed repayment schedule that simplifies budgeting.

1
Assess your position
Work out how much debt you have overall and how much interest you’re currently paying.
2
Compare options
Examine debt consolidation loan options offered by different lenders.
3
Apply once
Apply for a loan large enough to pay off all your existing debt.
4
Settle the old debts
Use the money to pay out the outstanding balances straight away.
5
Focus on one payment
Concentrate on paying off your single new loan on time.

Eligibility requirements and the application process

Typical requirements include:

Being an Australian citizen, permanent resident or eligible visa holder
A consistent income, evidenced by payslips or tax records
A credit score and debt-to-income ratio within acceptable bounds
Demonstrated capacity to make the new loan payments

Lenders evaluate your entire financial situation — assets, monthly costs, outstanding debts, work history and financial stability — using sophisticated risk models while upholding responsible lending norms. Many now offer online applications with 24-hour decisions. Avoid applying to several lenders at once, as this can lower your credit score; examine your options critically and apply to your preferred lender first.

Comparing your options

Pay more attention to the comparison rate than the quoted interest rate — it accounts for fees and charges and gives a more realistic view of total cost.

Lender type	Interest rate range	Loan amount	Key features
Major banks (NAB, CBA, ANZ, Westpac)	7.49%–20.49%	$5,000–$55,000	No exit fees, flexible repayment options
Alternative lenders	5.76%–18.95%	$2,000–$100,000	Fast approval, competitive rates
Credit unions	8.95%–16.95%	$5,000–$50,000	Member benefits, personalised service

Beyond the rate

Many borrowers find personal loan options from alternative lenders offer greater flexibility and competitive rates versus traditional institutions. Consider factors beyond rates too — customer service standards, early payment options, repayment flexibility, the ability to align payment dates with your pay cycle, or payment holidays during hardship.

Red flags: protecting yourself from predatory lending

The Australian Financial Security Authority warns against untrustworthy debt advisors who:

Charge in advance for services before rendering them
Guarantee acceptance regardless of your financial circumstances
Pressure you to decide right away
Lack the appropriate credentials or licences

Always verify your chosen lender holds an Australian Credit Licence and is regulated by ASIC. Reputable lenders are open about their costs and terms and never force you to sign paperwork before you’ve had time to read it.

Alternative strategies worth considering

Balance transfer credit cards

Can offer 0% interest periods up to 21 months, but require excellent credit and a clear strategy to pay off the balance before promotional rates expire. Best for those with good credit who can stick to strict repayment plans.

Debt management plans

Financial counsellors can help negotiate lower interest rates with current creditors without taking on additional debt — often working with a non-profit organisation that represents you and distributes a single payment among creditors.

Hardship assistance

If you’re truly struggling, contact your current lenders immediately. Australian banking regulations require lenders to provide hardship help — altered repayment plans, lower rates or payment pauses. Proactive communication frequently yields better results than avoidance.

Taking action: your next steps

If consolidation looks right for you, make a thorough record of all your debts — balances, interest rates and minimum payments — so you can calculate prospective savings and the required loan amount. Check your credit score for free before applying, fix any errors on your record, and consider settling small existing debts first; even modest score increases can secure significantly lower rates. Gather bank statements, tax returns, current payslips and details of all outstanding debts to speed up the application.

Success requires dedication after settlement: avoid new debt while repaying the consolidation loan, build an emergency fund to prevent further borrowing, set up automatic payments so you never miss one, and make extra principal payments where possible. Treat consolidation as part of a larger financial plan, not a band-aid — with careful planning it can provide the foundation for a more secure financial future.