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Home loan guide / Refinancing

Refinancing to consolidate debt

5 min read

Bailey Underwood

Are you paying off multiple loans or credit cards? Debt consolidation could be the answer to your repayment woes.

Please note: We don’t currently offer home loans for debt consolidation. There’s a lot of moving technical parts to figure out before we can simplify the process. Stay tuned for an update coming soon.

You’ve breathed the airs of French provincial towns, traversed icy Swiss alps and conquered boisterous beer halls in Berlin. Ah - the trip of a lifetime. Now home, you’re faced with the inevitable challenge of repaying the personal loan you took out to fund your European escapades. The cherry? You still have home loan repayments to make, and you’ve had to dip into a new credit card after Buster tore up the newly decorated lounge room in your absence.

Three loans, three interest rates, and three lots of repayments. What to do?

Why not combine three loans, into one? Debt consolidation may be the answer to your loan woes. Credit cards and personal loans can incur notoriously high rates of interest on borrowed funds. By combining your debts and refinancing them into your home loan, you could pay lower rates of interest, potentially saving you money (depending on your loan term).

That’s not the only benefit. A consolidation of your debt may help with your personal cashflow, too. Rather than three separate payments due at differing times throughout the month, it’s much easier to juggle and plan for a single repayment.

Planning in this way can give you a clearer picture of your finances and help you forge a considered path to paying off your debt. No longer will you need to worry about paying multiple different amounts of interest – have it all in one (often lower) repayment.

It could also mean you’ll pay less in annual fees and charges, as you won’t have to pay the administrative costs of keeping three separate loans open.

Be careful

Consolidating your debts sounds like a no-brainer, but you should always consider your financial position before committing to any big changes.

By refinancing to consolidate your debt, you may gain more access to credit – making it easier to fall deeper into debt. Consider your spending habits and make sure your refinanced loan won’t leave you financially worse off or tempt you to unnecessarily increase your expenditures.

Consider how your repayments may change, especially if you may be at risk of losing your home. Credit cards are a form of unsecured debt, meaning the credit is not backed by an underlying asset (so the banks can’t take anything from you without legal action if you miss repayments). Consolidating your debts into a larger, secured debt, like a home loan, means you risk losing your home if you fail to make repayments. So you should assess whether a larger loan will still be suitable for your circumstances.

Double-check the loan terms too – bundling your short-term debts into a longer-term one (e.g. a 30-year term) gives you more time to pay back the loan. But it also gives the banks more time to charge you interest. Make sure you’ll definitely be paying less by consolidating your debts.

Before applying for a debt consolidation loan, consider if it makes financial sense. One of the real risks of debt consolidation to both consumers and lenders is responsible lending, which means the lender needs to ensure it is responsible to match the loan term over the asset life. I.e., is it responsible to consolidate a 7-year car loan into a 30-year home loan, when the car will depreciate significantly in value in 7-10 years?

What’s the process like?

Very similar to refinancing, except instead of paying out the previous lender’s loan for you, your new lender will pay out multiple lenders for your multiple debts. Most lenders offering debt consolidation are able to combine many (and sometimes unlimited) numbers of debt for you.

Because your new lender will need to pay out multiple loans, sometimes to a few different lenders, it might take a little longer than a typical refinancing process.

Not sure what to look for when comparing home loans? Make sure to compare interest rates, fees and other costs before refinancing. Read our full guide on how to assess home loan features and interest rates.

Does Tic:Toc offer debt consolidation?

We don’t currently offer home loans for debt consolidation. There’s a lot of moving technical parts to figure out before we can simplify the process. But, stay tuned for an update in the near future…

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