When rates rise, it's often the smaller debts that tip a household budget over the edge. A car loan here, a credit card there, a personal loan for the wedding. Each has its own repayment and its own interest rate, usually much higher than your mortgage.
Consolidating them into your home loan can make life a lot easier. Done carelessly, it can also cost you more.
How it works
You refinance your home loan for a higher amount, use the extra to pay off your other debts, and then have one repayment at a home loan rate.
You need enough equity. Most lenders will lend up to 80% of your property's value without LMI, so the combined loan needs to fit under that.
A worked example
Nick and Emma owe:
| Debt | Balance | Rate | Monthly repayment |
|---|---|---|---|
| Home loan | $480,000 | 6.49% (25 yrs) | $3,238 |
| Car loan | $30,000 | 9.5% (5 yrs) | $630 |
| Personal loan | $15,000 | 12% (4 yrs) | $395 |
| Credit card | $12,000 | about 20% | $360 (minimum) |
| Total | $537,000 | $4,623 |
After consolidating into one $537,000 home loan at 6.49% over 25 years, their repayment would be about $3,623 a month.
That's about $1,000 a month freed up.
The trap: paying off a car over 25 years
Here's the catch. That $30,000 car loan would have been paid off in 5 years, costing about $7,800 in interest. Spread across a 25-year mortgage at 6.49%, it could cost over $30,000 in interest if you only make the minimum home loan repayment.
The lower monthly repayment comes from stretching the debt out, not just from the lower rate.
How to consolidate the smart way
Keep paying what you were paying. If you were paying $4,623 a month in total, keep paying that into your new home loan. The extra goes straight off the principal, and you'll clear the consolidated debt far faster.
Use a split loan. Put the consolidated debts in a separate split with a shorter term, say 5 years. You'll have a clear end date for that debt.
Close the cards. Once paid off, close or significantly lower the limit on credit cards. Otherwise it's easy to run them up again, and you'll end up with the debt twice.
Fix the cause. If debts built up because spending exceeds income, consolidation buys breathing room, but a budget fixes the problem.
Effect on your borrowing power and assessment
Lenders assess the new, larger loan at a buffered rate about 3% higher than the actual rate. But they also remove the old debt repayments from your expenses, so many people actually look stronger after consolidation.
Credit card limits count against you whether or not you use them, so closing cards helps your application too.
When consolidation doesn't make sense
- You don't have enough equity to stay under 80% LVR, and LMI would eat the saving
- The debt is nearly paid off anyway
- A personal loan has high early repayment fees (check your contract)
- You're likely to run the cards up again
What about tax?
If you're consolidating debts into an investment loan, be careful. Interest is generally only deductible when the borrowed money is used for income-producing purposes. Mixing personal debt into an investment loan can complicate deductions. Speak to your accountant.
Frequently asked questions
Can I consolidate debts if I have bad credit?
Sometimes. Specialist lenders offer consolidation for borrowers with past credit issues, usually at higher rates. It can still be cheaper than the existing debts.
Will consolidation improve my credit score?
Paying off and closing multiple accounts can help over time, as long as you keep up repayments on the new loan.
Can I include a tax debt or HECS?
Lenders treat these differently. Some will refinance an ATO debt with a payment plan; HELP debts usually aren't consolidated because they're repaid through the tax system at no real interest.
Juggling several repayments? Call Finfident on 0424 545 654. We'll show you the monthly saving and the long-term cost, so you can consolidate without the trap.
This article is general information only and doesn't take into account your objectives, financial situation or needs. Figures, rates and scheme rules are current as at October 2026 and can change. Finfident Finance Brokers (ABN 94 679 280 801) is Credit Representative 569374 of Outsource Financial Pty Ltd (ACN 131 090 705), Australian Credit Licence 384324.