A guide to consolidating your debts

Couple using calculator and thinking about debt consolidation

Looking to combine your debts into one manageable monthly payment? Debt consolidation with a personal loan could be an option. But there’s some important information that you should consider before applying.

What is debt consolidation?

Debt consolidation refers to taking out a loan to pay out all your existing debts. Combining all your current debts into one, easier to manage loan with a single monthly payment could help if you’re having difficulty juggling payments on multiple loans or credit cards. Here are some tips to help you make an informed decision when choosing whether to consolidate your debt or not.

The potential benefits of debt consolidation

Managing your debt becomes easier

Paying once, instead of multiple times a month

Taking out a personal loan to pay out your credit cards as well as any interest you owe means you'll only have one repayment to make every week, fortnight or month, over a fixed amount of time. Managing your debt thus becomes easier.

Obtaining fixed rates and terms

Obtaining fixed rates and terms

A fixed rate and term in a personal loan can help keep you disciplined in paying off debt quicker. But it’s important not to commit to a payment schedule that you can’t meet, or you’ll risk hurting your credit score

Lowering your monthly payments

Lowering your monthly payments

Stretching the term on your personal loan means that you could be spending less towards paying off your monthly repayment amount, but you will end up paying more overall. So consider this before extending your loan term.


The possible drawbacks of debt consolidation

Consolidating your debt means you will free up credit

Spending more overall

A personal loan with a longer term can help you reduce your monthly repayments, however, the longer loan term loan could mean that you’ll pay more interest and cost more overall.

You could damage your credit score

You could damage your credit score

If you shop around and gain multiple enquiries on your credit report, then it could reduce your credit score.

Likewise, if you don’t keep up with the monthly repayments on your personal loan, you could end up hurting your credit score or even find yourself in financial hardship


What to do before applying for a personal loan to consolidate your debt?

Does consolidating debt ruin credit score

Explore your options

Before you apply for a personal loan, find a loan that offers an interest rate and terms and conditions that work for you.
Does consolidating debt ruin credit score

Understand your finances

Take the time to calculate comfortable repayment terms and schedules that works for you, so you don’t risk paying late fees and further interest.
Does consolidating debt ruin credit score

Know your credit rating and serviceability

This will be useful when applying for a personal loan.
Does consolidating debt ruin credit score

Be proactive and take control of your debt

If you feel your debts getting out of hand, then take measures to ensure you can meet your financial obligations. This will help you stay in a good position to take on other loans in the future, such as a home loan.


Important questions to ask before consolidating your debt

Does consolidating your debt ruin your credit?

While consolidating debt does not 'ruin' your credit, if you’re taking out a new credit facility, your chosen lender will undertake a credit check, which will be recorded on your credit file. If you have recently applied for multiple lines of credit, then these all do add up on your credit file and may result in your score being lowered.

Can I consolidate debts with bad credit?

It’s possible that you may still be able to consolidate your debts if you have a lower-than-average credit score, however lenders may apply a higher interest rate based on your credit score and historical ability to meet your repayments.

Looking to consolidate your debts? We’re here to help

To get you started, find out how much your repayments might be on a Pepper Money personal loan using this handy calculator, or get your individual rate* before applying in just a few minutes (it won't affect your credit score).

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

*PERSONALISED RATES AND REPAYMENTS: The interest rate and repayments are based on personalised pricing. The final interest rate and repayments you are offered (if approved) may change based on your personal financial circumstances or security details provided. In some circumstances, we may require further information in order to provide a final interest rate and repayments (if approved).

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.

Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.

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