The benefits of debt consolidation

If you’re juggling multiple loan repayments and feeling weighed down by high interest costs, debt consolidation could be something that could help.

Debt consolidation works by combining all your existing debts into one manageable loan, so you can simplify your finances, lower your interest rate, and potentially pay off your debts faster. But while the benefits are clear, it's important to assess whether it’s the right strategy for your circumstances.

Lower interest costs
One of the biggest benefits of debt consolidation is the potential to reduce how much interest you’re paying. Credit cards, in particular, often carry interest rates of more than 20%. By rolling these debts into a personal loan or refinancing through your home loan, you may be able to cut that rate. This reduction can lead to significant savings each month and across the life of the loan.

Simplified repayments
Managing multiple debts, each with its own interest rate, payment date, and minimum amount, can be stressful and difficult to track. Consolidation turns that into a single monthly repayment, making budgeting easier and reducing the risk of missed payments. The peace of mind that comes with this simplicity can be just as valuable as the financial savings.

Faster debt payoff
With a lower interest rate and a fixed loan term, you’re in a stronger position to get rid of your debt sooner. Credit card minimum payments can stretch out for years, even decades. But with a structured debt consolidation loan, especially one that allows extra repayments, you can make faster progress toward becoming debt-free.

Financial roadmap
Debt consolidation offers clarity for people. Instead of managing multiple balances, you have a single loan with a clear repayment plan. This can help you focus on reducing your total debt rather than just juggling payments. It also removes the guesswork from your financial planning.

Things to consider
While debt consolidation has real benefits, it’s not a one-size-fits-all solution. It’s important to compare the total cost of your existing debts with the new loan. In some cases, a longer loan term could mean you end up paying more in interest overall. Be mindful of fees, charges, and any early payout costs on your current loans.

Discipline is also important. Consolidating your debts only works if you avoid falling back into old spending habits. Paying off your credit cards with a new loan and then racking them back up again could leave you in a worse position.

Before making a move, speak with a mortgage broker or financial adviser who can help you weigh up the numbers and choose the right option that suits your personal situation.