How it Works: The Pros and Cons of Debt Consolidation Loans

If you feel like you’re being crushed under the weight of several expensive, high-interest debts, you’re not alone.
William Jolly  |  

If you feel like you’re being crushed under the weight of several expensive, high-interest debts, you’re not alone.

Hundreds of thousands of Australians struggle with personal debts each year, and paying them off can be an arduous task. One option to eliminate your debts and get yourself back on track to financial freedom could be a debt consolidation loan.

This article will explain how debt consolidation loans work and the pros and cons of using one.

This article was originally published on 7 September, 2022.

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What is debt consolidation?

Debt consolidation, or debt refinancing, involves merging multiple debts, such as personal loans, car loans, and credit cards, into one loan, called a debt consolidation loan

This one loan will charge one interest rate and one set of fees and, most importantly, have just one ongoing repayment instead of several.

The purpose of consolidating debt is to make managing your repayments easier and to reduce your overall spending by lowering your total interest charges.

Debt consolidation loans still charge interest, just like a regular loan. Like any other loan product, you’re required to repay what you owe on time.

Important: Debt consolidation does not mean debt elimination. Just because your credit card debt ‘disappears’ from your statement once consolidated, you should keep in mind not to overspend and reach your limit again.

Does Jacaranda Finance offer debt consolidation loans?

We do! At Jacaranda, we specialise in providing reliable, convenient, and simple loans for debt consolidation. You can borrow up to $25,000 with loan terms as long as 48 months to combine your debts into one simpler repayment schedule.

Note: Refinancing or consolidating your current debt may result in higher total charges if the interest rate and fees are higher or the loan term is longer. You should also carefully consider the impact of increasing your debt, monthly obligations, and repayment term.

What Debts Can You Consolidate With Jacaranda?

At the time of writing (2024), you can consolidate the following debts with a Jacaranda Debt Consolidation Loan:

Pros and cons of debt consolidation loans

Before applying for a debt consolidation loan, here's a quick summary of the pros and cons of using one. It's important to do your research and understand these pros and cons before signing anything.

- You could pay a lower interest rate on one debt instead of multiple higher rates.

- One set of fees, if any.

- There is one repayment deadline for the one lender.

- Potential for improving your credit score by making timely repayments.

- Fixed rates give you a certainty of repayments.

- Potentially lower repayments can be achieved by stretching out your debts with a longer loan term.
- You can still accumulate more debt (i.e. with credit cards).

- Missing repayments can damage your credit score further.

- There can still be costs associated with consolidating debts (transfer fees, ongoing fees, etc.).

- Your loan terms can depend on your credit score

- Some loans can still have a high interest rate.

Australian debt statistics

According to global research from 2022, Australians have the fifth highest level of household debt in the world, with debts averaging 203% of disposable income. That means that the average Australian owes twice as much as they earn.

However, Australia is also the third-most debt-conscious country, and this research also found that Australians searched for debt-related terms at a rate of nearly 1,170 searches per 100,000 people.

“Australia recorded the third-highest search rates for both ‘borrow money’ and ‘credit card’, with 67.90 and 1,097.10 searches per 100,000 respectively,” the report said.

“However, Australians appear to be a little less comfortable with their debts, as the search rate for ‘debt advice’ in the country is almost twice that of the USA at 1.00 searches per 100,000.”

More recently, the OCED has placed Australia third in household debt, behind only Norway and Switzerland.

What debts do Aussies have?

According to NAB’s latest Australian Wellbeing Survey for Q4 2023, credit card debt is still the most widely held debt by Australians, with 38% having debt on at least one credit card. Home loan debt was next most common and held by 3 in 10 (29%) Australians overall; 22% carried BNPL debt, and around 17% owed money on a personal loan.

Types of debts held: December 2023

Type of debt

% of Australians

Credit card debt


Home loan


Buy now, pay later (BNPL)


Personal loan


Loan from family & friends


Investment loan


Payday loan


Source: NAB Australian Wellbeing Survey Q4 2023.

What types of debt are there?

The main types of personal debts in Australia are as follows. Note that not all debt is 'bad' (borrowing for things that don't improve your finances later, like wage advances or buy now, pay later). Some debt is 'good debt', such as a mortgage or student loan that is taken out to benefit you in the future.

Home loans

Also known as a mortgage, a home loan is when you borrow a large amount of money from a lender or bank to buy a property that is secured against the house itself. Home loans usually last a long time, up to 30 years or even longer.

Of the 10 million properties in Australia, around 6 million have mortgages against them, and the average new home loan size in March 2024 is roughly $608,000!

Car & personal loans

A personal loan is a set sum of money borrowed from a lender or bank to be repaid over a period of several years at a fixed rate of interest. At Jacaranda Finance, we offer Personal Loans up to $25,000 with repayments occurring weekly, fortnightly or monthly for up to 48 months.

A car loan is the same, except the vehicle is secured against the loan, meaning the lender can sell the car as compensation if you fail to pay off what you owe. 

Research shows that the average personal loan size in Australia is around $10,925, while the average price of a new car bought with a loan is over $35,000.

Credit cards

A credit card is a limited line of credit issued by a bank or credit provider. The amount of funds on a credit card, aka the credit limit, is set by the borrower during the application process and can be decreased or increased at their (and your) discretion.

Credit cards can have very high interest rates, with an average of more than 20% p.a. in 2024. They can also charge an average of $73 in fees each year.

According to Reserve Bank data, the average credit debt being charged interest per Australian (not per card) is just over $2,500!

Did you know: Approximately 68% of Australians say they have at least one credit card, and around 20% have at least two.

Buy now, pay later (BNPL)

Buy now, pay later (BNPL) services such as Afterpay, Zip and Humm allow you to purchase an item and repay it over time, typically over a series of four regular instalments. Most of these services don’t charge interest, but do charge late fees on missed repayments, and limit borrowing power to around $2,000.

According to one source, 25% of BNPL users have outstanding debt, while NAB found the average Aussie has nearly $700 worth of BNPL debt.

Average BNPL debts by demographic:

DemographicAverage outstanding balance (Debt)
Source: NAB Australian Wellbeing Survey Q4 2023.

Payday & short-term loans

A payday loan is a small loan, typically up to $2,000. It is designed as a short-term solution, and while lenders aren’t allowed to charge interest, they quickly rack up exorbitant loan fees. The maximum legal charges, which most payday lenders have, are a 20% establishment fee and a 4% monthly fee.

A 2019 report commissioned by over 20 consumer advocate bodies found that the average payday loan amount was just over $620. According to NAB, this figure is $751 as of 2024.

That might not seem like much, but once you factor in those high fees, that $620 would become over $1,022 for a 12-month payday loan. Nearly double!

Student loans

In Australia, depending on your eligibility, the government may cover your tuition fees with the HECS-HELP loan scheme. The scheme does not charge interest and is instead indexed according to the Consumer Price Index (CPI), and repayments only begin once a person’s income passes a certain threshold.

ATO statistics show an average outstanding HELP debt of $23,685 in 2021, up more than $400 from the previous year.

Other debts

Other less common debts include things like:

  • Unpaid energy & utility bills
  • Overdrawn account fees
  • Legal fees & court fines
  • Child support debts and more.

There’s no shortage of ways to get into debt. Fortunately, there are also options to get out of it. That’s where debt consolidation comes in.

Tips for consolidating your debts

Before you apply for a consolidation loan, there are a few things you should look to do first:

  • Clean up your finances: It can be hard if you’re in debt, but cutting down on discretionary expenses like gambling, BNPL, food delivery, and other ‘nice to haves’ can make a loan application a bit easier.
  • Avoid multiple applications: Applying for credit multiple times in a short space of time can reflect poorly on your credit report. Take your time finding the right lender for your needs.
  • Calculate your repayments first: Input your existing debts into a debt consolidation calculator to calculate your potential repayments. If they fit within your budget, then you’re on the right track.
  • Check the terms and conditions. Watch out for high establishment fees, ongoing fees, transfer fees, and more. Read the relevant product disclosure statement (PDS) to see all the fees a lender can charge you.

Importantly, debt consolidation loans can be very useful, but they aren’t a bulletproof strategy. They don’t solve the problem of what got you into debt in the first place. So if you apply for one, it could be beneficial to cancel and cut up any of those high-interest credit cards, stop using wage advances, payday loans and BNPL platforms, and avoid costly impulse purchases.

Debt consolidation loans still require a lot of discipline to pay off what you owe on time, but if you manage it, it might be one of the best financial decisions you can make.

Ready to consolidate your debts? With Jacaranda Finance, you can check if you qualify for a debt consolidation loan without impacting your credit score at all. If you don’t qualify, no harm done!

Other practical tips for paying off debts

You can also try some of the following if a debt consolidation loan isn’t for you.

  • Use your home loan: If you have a mortgage, you may be able to consolidate your debts into that rather than a personal loan. Home loans tend to have lower rates than most forms of debt, but not everyone has one.
  • Consider a balance transfer: A balance transfer is a type of credit card that lets you transfer other credit card debts to a temporary 0% p.a account. Just know that failing to repay your debts in the balance transfer period (which about 30% of users do) can result in an even higher interest rate!
  • Pay off your smallest debts first: Sometimes called the ‘snowball’ strategy, eliminating your cheapest and smallest debts first can help build momentum towards paying off the larger ones.
  • Pay off your costliest debts first: The ‘avalanche’ strategy is another method that involves going for the biggest and baddest debts first. With interest rates often over 20% p.a., credit cards can be a major source of debt. So paying those off first can be an important step to becoming debt-free.

Resources for debt help

If you’re struggling with debt and don’t think a debt consolidation loan will work for you, you can call the free National Debt Helpline on 1800 007 007 (Monday - Friday). Aboriginal and Torres Strait Islander peoples can also call the free Mob Strong Debt Helpline on 1800 808 488.

ASIC MoneySmart also recommends doing the following:

Personal loans for debt consolidation

Jacaranda Finance is a fast and flexible online lender that specialises in delivering reliable, convenient, and simple personal loans for debt consolidation. You can submit an application through our 100% online application process in as little as five minutes1 and receive an outcome on the same-day as your application.2

Even better, you could improve your credit score over time by making timely repayments thanks to Comprehensive Credit Reporting (CCR), and you can track your credit score’s progress for free in our mobile app.

So what are you waiting for? Check if you qualify without impacting your credit score today!

Written by - William Jolly

Content Manager
William is the Content Manager at Jacaranda Finance. He has worked as both a journalist and a media advisor at some of Australia's biggest financial comparison sites such as Canstar, Compare the Market and, and is passionate about helping Australians find the right money solution for them.

You can get in touch with William via
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