On this guide
Debt consolidation replaces multiple debts with one facility. It can simplify repayments and may reduce interest, but a lower monthly repayment does not prove that the new loan is cheaper. Extending the term can increase the total amount paid even when the rate falls.
Compare the current position
List each balance, interest rate, required repayment, remaining term and any payout fee. Include credit cards and buy-now-pay-later balances that may not have a fixed end date. Ask each provider for a current payout figure rather than relying on an old statement.
Calculate the new total cost
For the proposed consolidation loan, record the amount financed, interest rate, comparison rate where applicable, establishment and monthly fees, term and total repayments. Check whether any additional cash is being borrowed; that amount is not a saving.
| Question | Why it matters |
|---|---|
| Is the new rate lower? | A useful starting point, not the whole comparison |
| Is the term longer? | More repayments can offset a lower rate |
| What fees apply? | Upfront and ongoing fees delay the break-even point |
| Will paid-out accounts be closed? | Open limits can make re-borrowing easier |
What break-even means
The break-even point is when cumulative interest and fee savings exceed the cost of refinancing. If the debts would otherwise be repaid before that point, consolidation may not reduce total cost.
Reduce the risk of rebuilding debt
Consider closing or reducing paid-out credit limits where appropriate, setting an affordable repayment above the minimum and keeping an emergency buffer. Consolidation cannot fix an ongoing gap between income and expenses on its own.
Build a complete debt inventory
For every account record the current payout, rate, minimum repayment, fees, remaining term and whether the rate is promotional or variable. Include credit-card limits, buy-now-pay-later facilities and debts that will remain outside the consolidation. A zero balance with an open limit can still affect assessment.
Check whether any payout fee, deferred interest or early-repayment cost applies. Use current provider figures rather than estimating from the last statement.
Compare like with like
The new amount should be divided into debts being repaid, refinancing costs and any additional cash. Extra borrowing is not a saving. Compare the new term with the time the existing debts would take to repay under a realistic payment plan.
A comparison rate can help with prescribed examples, but the actual offer and amount may differ. Record total scheduled repayments and model what happens if the borrower continues paying the previous combined repayment instead of only the new minimum.
A simple break-even method
Add establishment, discharge and other switching costs. Estimate the monthly interest and fee difference between the old and new position. Divide switching costs by the expected monthly saving to estimate when those costs may be recovered. This is an approximation because balances and variable rates change.
If the expected break-even occurs after the debts would otherwise be repaid, consolidation may not reduce total cost. If the main objective is cash-flow relief rather than interest saving, state that clearly and assess the longer-term cost.
Secured consolidation changes the risk
Moving unsecured debts into a facility secured by a vehicle or property can reduce the rate or repayment, but it also places the secured asset at risk if obligations are not met. A longer secured term can keep short-lived spending outstanding for many years.
Understand the security, valuation, fees and consequences before proceeding. Obtain advice where needed and do not judge the outcome only by the monthly repayment.
Account closure and behavioural plan
Decide which paid-out accounts will be closed or have limits reduced. Keeping every limit available can make it easier to rebuild balances, leaving the borrower with both the consolidation loan and new revolving debt.
Create a realistic spending plan and emergency buffer. If normal income does not cover normal expenses, consolidation alone cannot solve the recurring gap. Free financial counselling can help identify hardship arrangements, budgeting and alternatives without selling a credit product.
Credit-report and enquiry considerations
A formal application may create a credit enquiry, and the lender can verify debts and repayment history. Check the credit report for errors and correct them through the appropriate process. Disclose known arrears or arrangements accurately.
Do not apply to several lenders speculatively. Compare likely policy first, then approve a targeted submission. Approval and pricing remain the lender's decision.
What X Lend compares
At X Lend, we list the current debts before discussing a new repayment. We separate genuine refinancing savings from relief created only by extending the term. We compare suitable panel options on amount, rate, fees, term, security and total scheduled repayments, then explain the proposed submission before the customer approves it.
If the figures show that consolidation would not improve the position, or repayments are already unmanageable, we point the customer toward free financial counselling rather than presenting new credit as a guaranteed solution.
Worked comparison framework
Create two columns. In the current-debt column total expected repayments, fees and the projected repayment date. In the consolidation column record the new amount, all fees, term and total scheduled repayments. Add notes for account closures, security and any excluded debt.
Run three scenarios: minimum repayments, the same combined repayment currently being made, and a modest extra repayment if permitted. This shows whether the benefit depends on maintaining a higher payment and how quickly costs may be recovered.
When to pause
Pause when current payouts are unknown, a promotional rate is about to change, the new term is substantially longer, the facility adds security without a clear benefit, or additional cash is being used to disguise the comparison. Also pause when the borrower needs hardship support more urgently than new credit.
Review the result after consolidation
Once settlement is complete, confirm that every nominated debt was paid out and record any small residual balance or interest adjustment. Obtain closure confirmation for accounts that should be closed and check that direct debits have been updated. Keep the new contract, payout statements and settlement records.
Review the household budget after one, three and six months. Compare the actual repayment and cash position with the assumptions used in the break-even calculation. If the consolidation created monthly savings, decide deliberately whether those funds rebuild an emergency buffer or accelerate repayment rather than allowing them to disappear into new spending.
Check the credit report later for account updates, understanding that reporting is not always immediate. Correct genuine errors through the formal process. Do not apply for new credit merely because limits have become available again.
If the new repayment becomes difficult, contact the lender early and ask about hardship assistance. The National Debt Helpline can provide free independent support. A consolidation plan is most useful when it includes follow-through, not only the day the old accounts are paid.
Recalculate the expected break-even if the interest rate, fees or repayment changes. The original estimate is a decision tool, not a permanent guarantee of savings.
Keep the calculation with the loan records and update it using actual statements.
Free financial counselling is available through the National Debt Helpline on 1800 007 007. A counsellor can help assess options without selling a credit product.
Any new credit remains subject to assessment. Review the contract and total cost, not only the advertised repayment.
