Rolling your debts into one: when debt consolidation makes sense
Most people don't have a debt problem. Instead, they've got is a spread across too many places.
A car loan here, a couple of credit cards there, maybe a personal loan that paid the stamp duty on the last place, and somewhere in the middle of it all, the home loan. Every one of them with its own repayment, its own rate, its own due date. It's not that any single debt is the issue. It's that keeping on top of all of them at once is exhausting, and it quietly eats your cash flow.
Debt consolidation is the move that fixes that. Here's how it works, when it stacks up, and the one thing you have to get right for it to actually help.
What it does
Consolidating means folding those other debts into your home loan, so you're left with one repayment at one rate instead of four or five.
It does three things:
Cuts the admin. One repayment, one lender, one thing to track. That alone takes a surprising amount of mental load off.
Lowers your total monthly outgoings. Home loan rates sit well below what you're paying on credit cards and personal loans, so the same debt costs you less each month.
Frees up cash flow. That gap between what you were paying and what you now pay is often exactly what gets someone back on top when things have felt tight.
The debts people roll in are usually car loans, personal loans, multiple credit cards, sometimes even an ATO bill.
How it works
You need two things for it to be possible.
First, space in your home loan. Specifically, room between what you owe and 80% of what your property is worth. That's the equity you'd draw on to pay the other debts out.
Second, serviceability. The lender still needs to see that you can comfortably afford the repayments on the higher loan amount, even though you're clearing the other debts in the process. The fact that you're paying those off doesn't change the test, the bank wants to know you can carry the bigger home loan.
The process looks like this:
We assess your current debts and work out which ones you want to clear.
We work out roughly what that would save you each month.
We get a valuation on your property.
We check your current loan balance against the future balance once the other debts are rolled in.
We confirm serviceability on the new, higher loan.
We either increase your loan with your existing lender, or refinance you to a new lender at the higher amount to cover the debts.
A real example
Say you've got an existing home loan of $800,000, and a property we've valued at $1.3 million. To get to 80% of that value, you've got a little over $200,000 of borrowing capacity to play with, assuming you can service it.
Now say you're also carrying:
A credit card of $20,000 you've been struggling to clear, costing you around $550 a month on the minimum.
A car loan of $30,000 with two years left, costing about $740 a month.
A personal loan of $15,000, costing about $498 a month.
Right now, between the home loan and those three debts, you're paying roughly $6,792 a month.
To pay the three out, we'd need $65,000. That takes your home loan to $865,000, which at 6.4% over 30 years costs about $5,411 a month.
Same debts, dealt with. But your monthly outgoings drop by around $1,381.
The thing you have to get right
Here's the catch, and it's the whole game.
You're taking short-term debts and spreading them over a 30-year home loan. In the short term that's not much of a problem, and the cash flow relief is real. But over the long run, you're paying interest on that $65,000 for a lot longer than you would have otherwise.
The way you win is simple: take the money you were putting toward those old repayments and park it straight into your offset account. You've freed up around $1,381 a month in this example. Put even part of it to work against the loan and you pay it down faster, offsetting some of the extra interest and keeping the long-term cost in check.
And the golden rule: don't let the debt build back up. Consolidating and then running the cards back to their limits just means more debt against your home, and you're worse off than when you started. The point is to reset, then stay reset.
A few things worth knowing
You may have to move lenders to make it work, depending on where your loan sits now.
The valuation matters. The more your property is worth, the more room you have to work with.
There may be capital gains and tax considerations in some situations, worth a conversation with your accountant alongside this.
Done right, debt consolidation is one of the simplest, highest-impact moves available to a lot of homeowners. Less admin, more breathing room each month, and a clear path to actually getting ahead.
If you're carrying a few debts and can't work out why you're not getting on top of them, that's exactly the conversation to have.
