News and Reviews
Is Debt Consolidation the Solution for Struggling Households?

Is Debt Consolidation the Solution for Struggling Households?
By Robert Heyward
Amid mounting financial pressure, Australians are turning to debt consolidation loans in record numbers, but experts warn this lifeline may come with hidden costs.
Debt consolidation combines multiple loans or credit card balances into a single repayment, potentially reducing interest and fees. While this can simplify finances and help pay off debt faster, the convenience can also cost more over time.
Recent research from Lendela reveals a 170% surge in debt consolidation loans over the past year, with the average loan sitting at $33,000 but climbing as high as $68,000. Loans exceeding $20,000 have doubled in volume, with young adults (18-29) driving a 62% increase in applications in just six months. Middle-aged Australians (40-59) remain the largest group, accounting for 45% of applications.
Jake Osborne, Lendela’s Australian country manager, notes the rising reliance on high-cost credit options like Buy Now Pay Later and salary advances. “These trends highlight growing consumer stress as households grapple with escalating costs,” Osborne says.
The financial strain isn’t limited to homeowners. While mortgage holders face heightened stress due to rising interest rates, renters are also feeling the pinch, despite some signs of stability.
REA Group senior economist Paul Ryan advises caution, noting that while debt consolidation can streamline repayments, it often incurs higher fees and extends loan terms. “This can lengthen the time to pay off your home loan, increasing overall costs,” Ryan warns.
Experts like James Algar from Mortgage Choice emphasise the importance of understanding the long-term implications. “Consolidating a car loan into your home loan may lower monthly repayments but significantly increase overall costs if not repaid quickly,” Algar explains.
Consumers are urged to verify debt consolidation services through ASIC’s website and calculate potential hidden costs, such as early loan payout penalties and application fees. Exploring options with existing mortgage providers may also yield better alternatives.
Debt consolidation can be a powerful tool for managing financial stress, but careful consideration is crucial to avoid long-term pitfalls.
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