Debt Consolidation Loans: What They Are And What to Know In Australia
Quick Answer: What Is a Debt Consolidation Loan?
A debt consolidation loan is a credit product used to combine multiple existing debts into a single new loan with one repayment schedule. In Australia, these options may be available through banks, credit unions, and some online lenders.
The aim is usually to make repayments simpler or more manageable, but consolidation does not always reduce the total cost of debt. Whether it is suitable depends on your income, existing financial commitments, and whether the new repayment structure is genuinely affordable.
If you’re considering a short-term credit product with Fundo, it’s important to know that using credit to repay existing debts (including debt consolidation) is a prohibited use for Fundo loans.
Loans are subject to credit assessment, eligibility criteria, and approval.
Credit provided by Fundo Loans Pty Ltd (ACN 604 639 143) Australian Credit Licence 491418.
Key Takeaways
What is it?
A credit product used to combine multiple debts into a single new debt with one repayment schedule.
Is it available in Australia?
Yes. Many banks, credit unions, and licensed lenders offer consolidation options.
Who is it suitable for?
People who can qualify for a new credit product that is genuinely easier to manage and affordable based on their income and expenses.
What are the risks?
You may extend your debt for longer or pay more overall depending on fees and loan terms.
What does Fundo offer?
Fundo offers regulated short-term credit products (SACC and MACC) for personal discretionary use only. These loans cannot be used for debt consolidation or repaying existing debts.
What Are Debt Consolidation Loans in Australia?
Debt consolidation loans are a type of refinancing. You take out a new credit product and use it to repay several existing debts, such as:
- Credit cards
- Store cards
- Personal loans
- Other consumer credit balances
After consolidating, you focus on repaying one new debt instead of multiple accounts.
In Australia, consolidation is commonly structured as:
- Unsecured personal loans
- Secured loans (for example, where a car is used as security)
- Balance transfer arrangements on credit cards
People typically pursue consolidation for reasons such as:
- Managing one repayment instead of several
- Having a clearer repayment timeline
- Potentially lowering overall borrowing costs
- Reducing financial stress from multiple due dates
However, consolidation only works if the new loan structure is actually easier to manage.
How Debt Consolidation Loans Work
A typical consolidation process includes several steps.
- Listing your current debts
You review balances, repayment amounts, fees, and due dates across your existing debts. - Applying for a new credit product
The lender assesses your:- income
- expenses
- current financial commitments
- credit history (where applicable)
- The goal is to determine whether the new credit product is suitable and affordable.
- Paying out your existing debts
Some lenders pay creditors directly, while others provide funds for you to pay the debts yourself. - Repaying the new credit product
Repayments follow the schedule outlined in the credit contract.
Missing repayments may lead to fees, default, or credit reporting impacts where applicable.
Important: consolidation is only effective if you avoid building up new debt again, such as continuing to use paid-off credit cards.
Are Debt Consolidation Loans a “Special Purpose Loan”?
Debt consolidation is sometimes treated as a special borrowing purpose because the funds are intended specifically to repay other debts.
Some lenders offer products marketed for this purpose, while others simply allow applicants to nominate debt consolidation as the reason for borrowing.
However, approval is never automatic. Applications are assessed like any other credit application.
Loans remain subject to credit assessment, eligibility criteria, and approval.
Debt Consolidation vs Hardship Arrangements
Debt consolidation is different from other financial solutions such as:
- Debt agreements under the Bankruptcy Act
- Financial hardship arrangements with existing lenders
- Debt management plans
If you are already behind on repayments or struggling to cover essential living costs, a consolidation loan may not address the underlying issue.
In these situations, it may be helpful to:
- contact your current lenders about hardship options
- seek free financial counselling support
Benefits of Debt Consolidation
Debt consolidation may be useful when:
- the new loan reduces the total borrowing cost
- the repayment schedule becomes simpler
- you can repay the debt faster
- the new repayments fit comfortably within your budget
Many borrowers find the main benefit is simplicity — managing one repayment instead of several.
Risks and Downsides
Debt consolidation can create new risks if the numbers do not work in your favour.
- You may pay more overall
A lower repayment can sometimes result from a longer loan term, increasing total cost. - Fees may apply
Some products include establishment fees, ongoing fees or exit costs. - You may accumulate new debt
If credit cards remain open and spending continues, you could end up with both the consolidation loan and new balances. - Secured assets could be at risk
If the loan is secured and repayments cannot be met, the lender may have rights to the asset used as security.
Short-term loans can be expensive and may not be suitable for everyone. Borrow only what you need and can afford to repay.
Who Might Consider Debt Consolidation?
Debt consolidation may suit people who:
- have manageable debt levels
- have stable income
- can qualify for a product with better repayment terms
- plan to reduce or close other credit facilities
It may not be suitable if:
- you need funds for everyday living costs
- you are already missing repayments
- new credit would increase your overall debt burden
What Do Lenders Consider?
When assessing consolidation applications, lenders typically review:
- income stability
- living expenses
- current debts
- recent bank account conduct
- whether repayments are affordable
A lender may also ask for details of the debts you intend to consolidate.
Alternatives to Debt Consolidation
Before taking a new loan, you may want to explore alternatives such as:
- Hardship arrangements – Existing lenders may offer temporary repayment adjustments.
- Budget and repayment planning – A structured repayment plan can sometimes resolve debt without new credit.
- Balance transfers – These can help in some situations but may include fees and promotional conditions.
- Financial counselling – Free financial counselling services can help review options without selling financial products.
How to Compare Debt Consolidation Options
When comparing credit products, focus on total repayment cost, not just the monthly amount.
Checklist:
- What is the total amount repayable over the term?
- What fees apply?
- Is the repayment schedule aligned with your pay cycle?
- Can you realistically close or reduce other credit accounts?
- What happens if you miss a repayment
Debt Consolidation and Fundo: What’s Allowed?
Fundo provides regulated short-term credit products.
Small Amount Credit Contract (SACC)
- Loan amounts: $500 to $2,000
- Loan terms: 4 to 39 weeks
- SACC loans do not charge interest.
- Fees include an establishment fee and a monthly fee, which are disclosed before you proceed.
Medium Amount Credit Contract (MACC)
- Loan amounts: $2,001 to $5,000
- Loan terms: 9 to 39 weeks
- Fees: establishment fee plus interest applies
Both products are unsecured, meaning you do not need to provide an asset such as a car or property as security.
However, Fundo loans are for personal, discretionary use only.
Prohibited uses include:
- repaying existing debts
- debt consolidation
- rent
- utility bills
- council rates
- mortgage repayments
Loans are subject to credit assessment, eligibility criteria, and approval.
Example Loan Costs
Example SACC loan
Example only: $1,000 borrowed over 20 weeks
- Loan amount: $1,000
- Establishment fee: $200
- Monthly fees: $200
- Total repayable: $1,400
- Weekly repayment: $70
SACC loans do not charge interest.
Example MACC loan
Example only: $2,500 borrowed over 6 months
- Loan amount: $2,500
- Establishment fee: $400
- Interest charged: $389
- Total repayable: $3,289
- Fortnightly repayment: $253
MACC loans include interest in addition to an establishment fee.
All costs are disclosed in your contract before you decide whether to proceed.
These examples are illustrative only. Actual costs depend on loan amount, term, fees, interest, and repayment performance.
Frequently Asked Questions
Can I get debt consolidation with bad credit?
It depends on the lender and your circumstances. You will usually need to demonstrate that the new repayments are affordable.
Do consolidation loans reduce repayments?
Not always. Lower repayments can result from a longer loan term, which may increase the total cost.
Is consolidation the same as refinancing?
Debt consolidation is a type of refinancing where several debts are combined into one.
Will applying affect my credit report?
A credit application may be recorded on your credit file. Multiple applications within a short period may also affect lender decisions.
Can I use a short-term loan to consolidate debt?
Some lenders may offer products marketed that way. However, Fundo loans cannot be used for debt consolidation or repaying existing debts.
What if I’m struggling to pay essential expenses?
If you cannot cover essential living costs, taking on new credit may increase financial pressure. Consider speaking with your lender about hardship options or contacting a financial counsellor.
Important Information
Short-term loans can be expensive and may not be suitable for everyone. Borrow only what you need and can afford to repay.
Fundo loans are for personal, discretionary use only.
Prohibited uses include:
- utility bills (electricity, water, gas)
- council rates
- rent
- basic living expenses
- repaying existing debts
- mortgage repayments
- debt consolidation
Loans are subject to credit assessment, eligibility criteria, and approval.
You must have an active Australian bank account in your name to apply. Fundo requires electronic authorisation to access bank statements for assessment purposes. Additional documentation may be requested if required.
For support during business hours, contact 1300 161 391.
