Piling up debts cause massive stress for Kiwi households, and sometimes it can feel near-impossible to get on top of. With household borrowing at record levels, making debt affordable and manageable has never been more urgent.

In this guide, we look at debt consolidation - a process of moving multiple debts into one debt, which is repaid with ongoing single payments. Debt consolidation is most likely to be beneficial if you have a manageable level of debt, you don’t plan to take on more debt and already have a reasonable credit score. 

In this guide, we outline everything you need to know about debt consolidations, tips to make it cheaper and most importantly get you debt free, faster. Our guide covers:

• How Debt Consolidation works
• Debt consolidation options
• Calculating the right amount to borrow
• 10 Must-Knows
• Debt Consolidation Frequently Asked Questions
• Top Debt Consolidation Offers​ ​

Debt consolidation is a simple process of moving individual high-interest unsecured debts into a single, lower-interest loan. It is designed to help you pay off debts faster with less stress and effort in managing a number of debts separately. You can consolidate your debts with a balance transfer credit card, a personal loan or a home equity loan.

What debts can I "consolidate"?
Generally, it's only unsecured personal debt - store cards, credit cards and personal loans etc. You can't include student debt, mortgages and (in most cases) car loans. 
 
Savings from lower interest
If you pay a range of interest rates, a debt consolidation loan can save thousands of dollars over the life of your loans. For example, if you have a credit card balance of $5,000 at 25% p.a., a personal loan of $7,500 at 18% p.a. and a store card balance of $5,000 at 25% p.a., you can apply for a debt consolidation loan which will come with a single interest rate lower than what you currently pay. This helps you pay the total debt off faster and pay less interest overall.
 
Changing Spending Habits is Key
Debt consolidation isn’t a magic solution for debt problems. It won’t change your spending behaviour that created debt in the first place. It also won’t help if you’re at a point of a debt crisis and don’t have the money to repay even at a lower level. If this is you, read our Debt Help guide to understand your options.​

There are two popular ways to consolidate debt, and one less popular way which is relatively risky. All three move your debts into a single “easy to manage” monthly bill if organised correctly. The interest rate you pay and how long you repay will depend on the terms you agree with the lender. The options are:

1. Apply for a Balance Transfer Credit Card: If you qualify for a 0% offer, your debts will become interest-free once you transfer all of your debts. You can then make monthly repayments to clear the balance for the term of the interest-free period. If you find yourself unable to get a 0% offer, there are several low-interest options with interest rates starting at 6.99% p.a. 
2. Apply for a Fixed Rate Personal Loan: The money you are approved for will pay off high-interest debts leaving you with the obligation to make regular payments over a fixed period. Most personal loans give you the option of over-paying without penalty, meaning you can be debt free faster.
3. If you're a homeowner, there is the option to ask your bank about an equity release or line of credit loan, known as a "Revolving Mortgage". This is a risky solution if you don't repay the debt, as your property is used as security. How it works is quite simple - if you have equity in your property, you can ask the bank to advance a loan on it. You'll pay interest on what you draw down, but the interest rate will be well below a standard credit card and a personal loan. If you have a lot of debts nagging you and own a home, this is one way to clean them up easily and cheaply. 

​
Which options are right for you depends on the amount of debt you have, your current interest rates and your budget to repay it. 

If you’re committed to reducing the amount of money you spend on repaying your debts, it’s essential to spend a moment upfront to make sure you get the best possible deal. Our five steps make it easy:

1. Calculate how much you need to borrow: Add up all the debts you want to consolidate – this will be the amount you need to borrow.
2. Decide your payback period: don’t overestimate your ability to repay the loan – if you need $20,000 and it will take you four years to repay it, don’t think you can do it two years. Look at your bank account, how much you earn and how much you spend (excluding all your debt repayments). What’s left is your “free cash flow”. Take your loan total, and divide it by that amount  – what you’re left with is how many months it would take to repay the loan.
3. Allow for unexpected events: With the estimated repayment period you've calculated, multiply by 1.5 to account for the interest costs and also to give you a buffer – you can always overpay spare money after making your loan repayment – most debt consolidation loans don’t charge fees for early or over repayment. Remember, the longer it takes to repay, the more interest you will pay.
4. Shop around for the lowest interest rate: The interest rate is the major factor in how much your loan costs. You need to see the lowest % - This is the main cost of your loan, so you need to look for the lowest percentage offer. 
5. Apply for a balance transfer credit card if you have good credit: If your total debt is no greater than around $10,000, this is a good option. Talk to the bank before you apply and read our balance transfer credit card guide to get the best deal. 

Our best buy personal loans list options from 6.99% - the better the applicant's credit history and ability to repay, the lower the interest rate. We frequently hear of readers who have applied for a low interest rate debt consolidation loan and been offered something above even their most expensive debts. Cleaning up your credit history (see below) and following a strict budget gives you the best chance of getting a lower interest rate.

It depends. If you make timely repayments, there will be no effect on your credit score. If you are late with repayments, it is likely the lender will enter this on your records. Every situation is different - the general rule is that repaying on time (or early) is positive, and vice versa.

It depends. If you can get a loan or balance transfer with a lower interest rate than you are currently paying, and the fees are low, debt consolidation is a good idea. If you are very close to repaying all of your debts, it may be an idea to continue to do so to avoid more credit applications and associated fees. 

Fees range, but usually it will be a one-off loan application fee ($100 to $250 is the standard range), or up to $50 for the joining fee of a balance transfer credit card. There is also the cost of the interest, and any late payments incurred. 

It depends. If your credit is particularly bad and you face being refused, our debt help guide lists community-based lenders that can assist with low interest loans for specific purposes. Generally, the more troubled your credit history, the higher the interest you pay.

We have listed the top picks for loans and balance transfer credit cards below. 

If you are struggling to make repayments, you are best to talk to your lender. Our debt help guide outlines the process of making a hardship application, whereby the lender looks at your finances and can freeze your repayments until you are financially stable.

Debt consolidation is popular for reducing debt expenses by paying lower interest rates, and making debt management easier - you make one regular repayment instead of one for each debt you have. 

We outline the best current offers available. A popular tip is to check your credit score and credit history to make sure there are no errors that could hurt your application. Read our guide to credit scores to know more. 

​^Harmoney and *Squirrel Money are peer to peer lending platforms - please read our dedicated Harmoney review and Squirrel Money guides for information about borrowing.