What is debt consolidation?

Juggling multiple debts can be overwhelming, particularly if you’re managing different interest rates, repayment schedules and loan terms. Debt consolidation could be a powerful tool to help you regain control of your financial situation and make paying off debts easier.
Debt consolidation is the process of combining multiple debts into a single loan, often with a lower interest rate, or more favourable terms. Replacing multiple payments with one regular payment could make managing your debts more straightforward and less stressful.
Several types of debt can be consolidated, including:
Debt consolidation offers several potential benefits to help you manage your finances more effectively.
Making one regular repayment instead of keeping track of multiple due dates, loan amounts and interest rates is a streamlined way of managing debt and could reduce the possibility of missing payments.
If you’re paying high interest on multiple credit cards or personal loans, combining these into a single loan with a lower interest rate may save you money over time. There’s also the possibility of lower fees on one loan, rather than on multiple individual debts.
Reducing the number of debts that you need to monitor may make financial management easier and alleviate the mental burden of keeping track of administration.
A single loan may provide a clearer view of when you’ll be debt-free. Debt consolidation loans can have fixed repayment terms, so you’ll know exactly when your debt will be paid off – a great motivator!
Here are the steps typically needed to consolidate your debt:
While debt consolidation loans and balance transfers could both ultimately consolidate your debts, there are a few key differences between them.
Debt consolidation loans are personal loans used to pay off multiple debts, combining them into one loan with a single regular payment. These might be beneficial for people with multiple types of debt (credit cards, personal loans, store cards) and want to simplify their finances with one payment.
A balance transfer involves moving high-interest credit card debt to a new credit card with a lower or 0% introductory interest rate. This option might be beneficial for people with high-interest credit card debt who can pay off the balance within the introductory period.
Remember, debt consolidation doesn’t mean forgetting about your debts, so it’s important to make sure it’s the right option for you. Here are some important considerations:
Depending on your financial situation, there may be some other strategies for managing debt. This could include debt management plans offered by credit counselling agencies. The agency will negotiate with your creditors and consolidate all your repayments into one repayment.
Credit counselling can help you create a budget and debt repayment plan, as well as financial education and advice. Then, personal budgeting strategies such as cutting expenses or allocating more money towards debt repayment may help you manage your debt without the need for consolidation.
To get started with debt consolidation, be sure to compare multiple lenders and products to choose the right one for you. It’s also crucial to fully understand the loan terms, including the interest rate, fees, and repayment schedule.
Westpac has a suite of budgeting tools and resources to help. When it comes to staying on track, there’s SmartPlan, a repayment planner for Westpac personal credit card customers, and Autopay which automatically makes your monthly credit card repayments.
For personal loan repayments, there’s a repayment calculator to help you estimate how much your repayments could be before you apply.
And don’t forget that budgeting tools in the Westpac app allow you to compare your spending across categories and track trends in your cash flow.
Debt consolidation, when done effectively, could allow you to take back control and reduce the excess fees and interest you pay, which in turn may save you money across the period of your loan. It is also important to keep in mind the potential considerations about Debt consolidation and its suitability for your financial needs and goals.
By carefully assessing your debts and choosing the right consolidation option, you could work towards a more manageable financial situation and improve your financial wellbeing.
This information is general in nature and has been prepared without taking your personal objectives, circumstances and needs and into account. You should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.
Credit criteria, fees, charges, terms and conditions apply. Credit provided by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.