Best Types of Loans for Debt Consolidation in Australia

The best debt consolidation loans in Australia fall into five categories: unsecured personal loans, secured personal loans, balance transfer credit cards, mortgage top-ups, and lines of credit. Which one suits you depends on how much you owe, what type of debts you have, whether you own assets, and how quickly you want to be debt-free.

Five ways to consolidate debt in Australia

Each consolidation tool works differently, carries different risks, and suits a different situation. The comparison below covers how each one works, who it is best for, and the catch you need to know about before committing.

1. Unsecured personal loan

An unsecured personal loan is the most common consolidation tool in Australia. You borrow a lump sum, use it to pay out your existing debts, and repay the loan over a fixed term with fixed repayments.

Typical rates: 6% to 14% p.a. for good credit, 15% to 29.9% for impaired credit Loan amounts: $2,000 to $75,000 Terms: 2 to 7 years

Best for: credit card debt, store cards, buy now pay later balances, medical bills, and other personal loans. Works for most people with stable income and a reasonable credit history.

The catch: you need to close or reduce your old credit accounts after consolidating. If you leave them open and spend on them again, you end up with the consolidation loan plus new card balances. For a step-by-step guide to the process, see our article on how a personal loan for consolidation works.

2. Secured personal loan

A secured personal loan uses an asset, typically a vehicle, as collateral. The lender's risk is lower because they can recover the asset if you default, which translates to a lower rate and higher approval odds.

Typical rates: 5.5% to 14% p.a. depending on credit profile and asset value Loan amounts: $5,000 to $100,000 Terms: 2 to 7 years

Best for: borrowers with impaired credit who own a vehicle worth $10,000 or more. The secured structure can mean the difference between approval and decline, and the rate is typically 3% to 5% lower than an unsecured loan at the same credit score. See our guide to consolidation with bad credit for what lenders assess.

The catch: if you cannot make the repayments, the lender can repossess the vehicle. You are converting unsecured consumer debt into secured debt, which increases the downside if things go wrong.

3. Balance transfer credit card

A balance transfer card lets you move existing credit card balances to a new card with a 0% introductory rate for a promotional period, typically 12 to 24 months. You pay off the balance interest-free during that window.

Typical rates: 0% for 12 to 24 months, then 20% to 22% (revert rate) Maximum transfer: typically $10,000 to $30,000 depending on your approved limit Balance transfer fee: 1% to 3% of the transferred amount

Best for: people with credit card debt only (not other loan types), who are confident they can pay the full balance within the introductory period. If you owe $8,000 and can pay $700 a month, a 12-month 0% card clears the debt with zero interest.

The catch: the revert rate. Any balance remaining after the introductory period is charged at the card's standard rate, typically 20% to 22%. If you transfer $15,000 and only pay off $10,000 in the intro period, the remaining $5,000 reverts to a rate higher than most personal loans. New purchases on the card are usually charged interest immediately, with no interest-free days.

4. Mortgage top-up (home loan refinance)

A mortgage top-up adds your consumer debt to your home loan. The rate is lower because the loan is secured against your property.

Typical rates: 5.5% to 7% p.a. (current home loan rates) Loan amounts: limited by your available equity Terms: typically added to your remaining mortgage term (15 to 30 years)

Best for: almost nobody, despite how often it is suggested. The lower rate is deceptive.

On $60,000 of consumer debt, a mortgage top-up at 6.34% over 30 years costs $74,262 in total interest. A personal loan at 14% over 5 years costs $23,766. The mortgage rate is less than half, but the term is six times longer, and you pay over $50,000 more in interest. For the full comparison, see our guide to personal loans for consolidation.

The catch: you are converting unsecured consumer debt into debt secured against your home. If you default on a personal loan, you lose access to credit. If you default on a mortgage, you can lose your house. The risk is not proportionate to the debt being consolidated.

5. Line of credit or personal overdraft

A line of credit gives you access to a pre-approved amount that you can draw on and repay flexibly. Some people use it to consolidate by drawing enough to pay out existing debts.

Typical rates: 8% to 16% p.a. (variable) Loan amounts: $5,000 to $50,000 Terms: ongoing (no fixed end date)

Best for: very few consolidation scenarios. A line of credit works well for managing irregular cash flow, but it is a poor consolidation tool because it has no fixed repayment schedule.

The catch: the flexible structure that makes a line of credit appealing is exactly what makes it dangerous for consolidation. Without a fixed term and mandatory repayments, there is nothing forcing the balance down. You can make interest-only payments indefinitely, which is the same problem that made credit cards expensive in the first place.

How the five options compare

Which option fits your situation

Start with your debt total and type, then narrow from there.

Under $10,000 in credit card debt only: a balance transfer card at 0% is likely the cheapest option if you can pay it off within the intro period. If you are not confident you can clear it in time, an unsecured personal loan is safer.

$10,000 to $50,000 across mixed debts: an unsecured personal loan is the standard choice. Fixed rate, fixed term, covers all debt types. If your credit is impaired, a secured loan against a vehicle improves your odds and lowers the rate.

Over $50,000 in consumer debt: an unsecured personal loan still works up to $75,000 with some lenders. Do not roll this into your mortgage. The total interest on a 30-year term will exceed the interest on a 5-year personal loan by tens of thousands of dollars, even at a much lower rate.

Impaired credit and no vehicle: check whether you qualify for an unsecured personal loan with a specialist lender. If not, a hardship variation on your existing debts may be the better path.

For a detailed look at whether consolidation makes financial sense in your situation, see our guide to whether debt consolidation is a good idea.

This article is general information only and is not financial advice.