Published 15 June 2026. Figures and market conditions described here were current at that time and may have changed since.
The start of a new financial year is a common moment to take stock of existing debts.
If you are juggling multiple repayments across credit cards, a car loan, a personal loan and a few ‘buy now, pay later’ accounts, the idea of rolling everything into a single monthly repayment is appealing.
Debt consolidation can be a genuinely useful tool, but it suits some situations better than others. Here are five things worth understanding before deciding whether it is the right move.
Consolidation simplifies repayments but does not reduce what you owe
A debt consolidation loan combines multiple debts into one, replacing several repayments with a single monthly amount. What it does not do is reduce the total amount owed. The benefit is simplicity and, depending on the interest rate, potentially a lower overall cost. But if the new loan carries a higher rate than existing debts, or the term is significantly longer, consolidation may cost more over time rather than less.
Compare the overall interest costs and repayments
Consolidation generally makes more financial sense when the rate on the new loan is lower than the rates across existing debts. Credit card debt in particular often carries rates well above those available on a personal loan. Comparing the rate on offer against current repayments is one way to assess whether consolidation could reduce overall interest costs.
Watch for fees on both sides of the transaction
Closing existing debts early can trigger break fees or early repayment charges, particularly on fixed-rate personal loans or car finance. The new loan may also carry establishment fees. These costs are worth factoring in before committing, as they can reduce or eliminate the savings you were expecting. Getting a clear picture of fees on both sides gives a more accurate sense of the overall benefit.
Your credit file will likely affect the rate you are offered
The interest rate a lender offers on a consolidation loan is not fixed. It will be influenced by your credit history, income, existing debts and overall financial position. If your credit file has some blemishes or your debt-to-income ratio is high, the rate offered may be higher than advertised rates suggest. Checking your credit file before applying gives you a realistic sense of what to expect and time to address any errors.
Consider spending habits alongside any consolidation decision
One of the more common pitfalls of debt consolidation is paying off credit cards and ‘buy now, pay later’ accounts, then gradually running them back up again. The new financial year can be a useful moment to review spending habits, at the same time as reviewing debt, including whether to close accounts that are no longer needed or reduce credit limits.
If you are considering consolidating your debt heading into the new financial year, a finance broker can help you compare your options across a range of personal loan products and lenders.
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