Debt consolidation has become the ultimate hangover cure for binge spending over Christmas according to Compare the Market’s Economic Director David Koch, as Aussies work to crunch over $18 billion in credit card balances accruing interest.
With Reserve Bank data showing the average lending rate for credit card balance at whopping 17.98% in September, Mr Koch said lenders were expecting a spike in refinancing in the New Year.
Mr Koch said debt consolidation – rolling multiple loans into one – has become a popular way to manage debt with a single due date, repayment amount and interest.
“We know interest rates on credit cards and some personal loans can be upwards of 20%,” Mr Koch said. “Home loan rates are typically much cheaper, with some of the rates in Compare the Market’s analysis are under 6%.
“Debt consolidation is where you consolidate all your high interest debt into one low interest loan. It is a good strategy if it’s done well… but you need to think it through and be disciplined about it.
“Any high-interest debts should be treated with caution – you may want to reconsider any debt where the costs in interest and fees far outweighs the benefit you get from the purchase.
“Even if you think you can wing a better rate, if your lender extends the loan term, you may pay more in the long run. For example, rolling a high interest credit card debt into a low interest home loan is sensible. Except if you turn that short term high rate loan into a 30 year long term low interest loan. In the end, you’ll pay more in interest.
“The key is rolling that credit card balance into the home loan and then setting a strict time frame to pay the extra off the mortgage… even using the credit card interest you’ve saved on the switch.
“We urge families to consider carefully and avoid the temptation to overspend during the holidays.”
A recent Compare the Market survey revealed almost two-thirds of Australian adults have some form of debt.
The nation’s most common types of debt includes credit card debt (38.5%), Buy Now Pay Later (16.8%), higher education (14.8%) and mortgage repayment being in arrears (11.5%).*
The data also showed more than 9% of people surveyed have personal loans, car loans and energy or utility debt. Less than a third of Australians said they did not have any debt.
|What kind of debt do you have?
|Credit card debt
|Higher education debt (HELP/HECs)
|Mortgage repayments arrears
|Debt to family/friends
|Payday loan debt
|Overdrawn bank account
|Other (please specify)
|Rent payments arrears
Survey of 1004 adult Australians, conducted in September 2023.
Australian Bureau of Statistics figures show average household debt grew by 7.3% to $261,492 in 2021-22.
“You can imagine how much that number might have grown after 13 rate rises since May last year,” Mr Koch said. “And we know people are taking on debt to afford everyday essentials like electricity, petrol and groceries.
Kochie’s top tips for considering debt consolidation
“Block out an hour in your calendar to shop around for a loan with a low interest rate, with conditions that work for you,” Mr Koch said.
“Make sure the repayment terms and schedules align with your personal circumstances. For example, if you get paid on Tuesday, maybe schedule the loan repayments for Wednesday or Thursday, so you mitigate any risk of paying late fees and further interest.
“And if you are up to your eyeballs in debt, it could be time to speak to a professional or talk to your bank or lender about hardship programs, payment plans and payment extensions.”
Mr Koch encouraged Aussies to get a free credit score and report from Compare the Market to understand how debts and loans could impact their financial future.
“Compare the Market research shows over 40% of homeowners have never checked their credit score,” Mr Koch said.
“Getting familiar with your credit score could help you set some goals to get your finances in better shape for refinancing in the New Year.”
If you need support the National Debt Helpline is free to call on 1800 007 007.
*RBA data on credit and charge card balances, September 2023.
*RBA data on personal lending rates 30 September 2023
*Survey of 1004 adult Australians, conducted in September 2023.
For more information, please contact:
Natasha Innes | 0416 705 514 | [email protected]
Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, travel and home loan products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.