Personal loans: is it best to consolidate debt or pay it off separately?

By Polly Fleeting · · 3 min read
Fact Checked
Advertiser disclosure
woman on laptop working out her debt

If you have multiple personal debts, you may be wondering: what is the simplest way to pay back what I owe? 

Reality is, it’s totally up to you. 

But there are some financial hacks which may help you save on interest and make your repayments more convenient.  

What is personal debt? 

When talking about “personal debt” we mean things like personal loans, car loans, credit cards etc. 

Generally speaking, mortgage debt doesn’t fall into this category as home loans tend to be of a longer period of time and operate a bit differently when it comes to consolidation. 

At the moment, the average rate across personal loans and credit cards on the Mozo database are as follows: 

  • Fixed personal loan: 7.36% 
  • Variable personal loan: 5.05%
  • Car loan: 6.68% 
  • Credit cards: 17.43% 

So someone with debt across multiple financial products might be forking out a lot in interest across a number of different repayments they make. 

So how do I clear my debt? 

There are a few ways to clear your personal debt: paying it off separately or opting to consolidate your debt. 

If you’d prefer to pay your debt off separately, it means juggling multiple repayments and deciding which products you prioritise. 

This is a totally viable option for some customers, as long as you stick to your repayments and avoid being whacked with any late payment penalties. 

There are two main strategies to paying off your personal debt separately: 

  • Pay off debt with the highest interest rate first: This way you are maximising the amount of interest you avoid paying. 
  • Pay off debt with the lowest balance first: This can be a great way to boost your motivation by clearing smaller debts first and create one less debt for you to manage once it's paid off. 

It’s crucial to keep in mind here though that you cannot simply ignore a given debt amount even if you are placing more focus on another. 

For example, say you decide paying off your car loan is more important than your credit card debt. In this case, you must make sure you continue to pay your minimum repayment amount on your credit card alongside your car loan repayments to avoid incurring a late fee.  

Alternatively, there is the option to take out a debt consolidation loan instead. Here’s how it works …  

What is the smartest way to consolidate debt?

A debt consolidation loan can be a smart way to reduce the interest you pay on your debt and make your repayments more manageable. Offered by banks and personal loan lenders, there are plenty of options whether you prefer more traditional banking or completely online loans instead. 

With debt consolidation, rather than making multiple repayments across financial products like loans or credit cards, this product rolls all these debts into one. That way, each week, fortnight or month you only have to make one repayment, rather than a few, which makes things easier for you. 

Plus, you can align your repayments with when your salary hits your account and even set up automated payments, making the whole process pretty thought-free! 

In most cases, the interest rate you’re offered will be lower than at least one of the interest rates you currently have (if not all of them). This means that by combining your debts you could actually be charged less interest on what you owe. 

IMPORTANT NOTE: As mentioned above, when referring to personal debts, we don’t mean your home loan. It isn’t wise to include your mortgage in a debt consolidation loan because the length of the loan (around 20 to 30 years) will actually draw out other personal debts and may end up costing you more in interest. 

Want to start comparing debt consolidation loans right now? Check out these options below or head to our debt consolidation loan hub for more!

Compare debt consolidation loans - last updated 18 April 2024

Search promoted personal loans below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Unsecured Personal Loan

    Fixed

    interest rate
    comparison rate
    Monthly repayment
    6.75% p.a.to 26.95% p.a.
    6.75% p.a.to 26.95% p.a.based on $30,000
    over 5 years

    Borrow up to $50,000 unsecured. Perfect if you earn more than $22,100 p.a. and have good to excellent credit. Multi-year winner of Mozo’s Experts Choice Unsecured Personal Loan Award, 2021, 2022, 2023 & 2024^'

    Repayment terms from 2 years to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,430.23 including fees.

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  • Unsecured Personal Loan

    Fixed

    interest rate
    comparison rate
    Monthly repayment
    5.76% p.a.to 24.03% p.a.
    6.55% p.a.to 24.98% p.a.based on $30,000
    over 5 years

    Fast, easy and 100% online, this is a low cost loan with no ongoing fees or extra repayment penalties. It's perfect for savvy borrowers with great credit. If you’re over 18 and earn above $30,000, you could qualify (other eligibility criteria may apply).

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  • Featured Product
    Mozo Expert Choice Badge
    Low Rate Personal Loan

    Excellent Credit

    interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 8.48% p.a.
    7.19% p.a.to 8.84% p.a.based on $30,000
    over 5 years

    Competitive low rates for borrowers with excellent credit on 1-7 year loans from $2,001 up to $75,000, plus free extra repayments. Winner of Mozo's Experts Choice Excellent Credit Unsecured Personal Loan 2024 and Excellent Credit Secured Personal Loan 2024 awards ^. Min. income of 25k after tax, to apply.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.

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  • Express Personal Loan

    Secured

    interest rate
    comparison rate
    Monthly repayment
    14.95% p.a.to 27.95% p.a.
    29.30% p.a.to 42.8% p.a.based on $10,000
    over 3 years

    Access fast finance on loans from $5,000 to $25,000 with a Jacaranda Finance Personal Loan. Terms from 24-48 months. Check if you qualify with no impact on your credit score. Enjoy a speedy, online approval.

    Repayment terms from 2 years to 4 years. Representative example: a 3 year $10,000 loan at 14.95% would cost $14,324.71 including fees.

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  • Debt Consolidation Loan

    interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 18.99% p.a.
    7.19% p.a.to 19.39% p.a.based on $30,000
    over 5 years

    Competitive fixed rates on loans up to $75,000 depending on your credit score. Zero monthly account keeping fees, no exit fees and no early repayment fees. Make weekly, fortnightly or monthly repayments, over 1 to 7 years managed entirely online, at any time. Fast and easy, 100% online application.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.

    Compare
    Go to site
    Details
  • Debt Consolidation Loan

    interest rate
    comparison rate
    Monthly repayment
    5.76% p.a.to 24.03% p.a.
    6.57% p.a.to 24.99% p.a.based on $30,000
    over 5 years

    Roll multiple debts into one loan to streamline your finances with one set of repayments and one interest rate. Competitive fixed interest rates with no monthly or early repayment fees and flexible repayment options. Easy online application and funding in as little as 24 hours (subject to approval).

    Repayment terms from 3 years to 7 years. Representative example: a 5 year $30,000 loan at 5.76% would cost $35,173.52 including fees.

    Compare
    Go to site
    Details

* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

^See information about the Mozo Experts Choice Personal Loan Awards

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