Alternatives for Consolidating Debt

If you are currently paying several unsecured debts each month e.g. credit cards, store cards, catalogue bills, bank loans etc. then you might be paying more than you have to and more than you can comfortably afford to.

As an Australian there are several options open to you for debt consolidation. Debt consolidation allows you to combine a number of individual unsecured debts into one single debt that requires a single payment each month. The type of debt consolidation that you choose will depend to a large extent on whether you are currently struggling to meet your debt payments each month, or whether you simply want to save money while making life that little bit easier.

Debt Consolidation Loans

A debt consolidation loan is an unsecured loan that can be taken out in order to pay off multiple unsecured debts that you currently have; leaving you with just one loan to pay. This type of loan generally has a lower interest rate than most other forms of unsecured debt and as a result you end up with one low monthly payment.

So for example, let’s say you have two credit cards and a store card at present with a total outstanding balance of $8000. Your total monthly payment for the three is $200. Paying the minimum amount each month will clear your debts in an average time frame of 7 years.
If you take out a debt consolidation loan of $8000 though and pay off your credit card balances and your store card balance you could reduce your monthly payment by $50 or more. You would also only pay your loan for 5 years and would be free from debt at the end of the loan term.

A debt consolidation loan is the number one debt solution for people who can afford to pay their debt commitments each month but at the same time want to save on the amount they’re paying. You will need to have a perfect credit history to qualify for this type of loan however so it is worth checking your history before making an application.

A Debt Agreement

If you’re struggling to pay your creditors each month then you’ll need to look at an alternative form of debt consolidation, such as a Part 9 debt agreement. This type of debt consolidation is for anyone who can afford to pay something towards their debts but can’t afford the current level of payments.

In simple terms, a debt agreement pools all of your current unsecured debts into one lump sum. You propose a monthly amount that you can comfortably pay to your creditors and they vote on whether to accept your proposal or reject it and file for bankruptcy. Most debt agreements are accepted though as your creditors know they will get a large percentage of their money back over time.

If your debt agreement proposal is successful your creditors are legally obliged to freeze interest charges and penalty fees on your accounts. Even with this help though some agreements run for many years, depending on the total amount of unsecured debt you take into the agreement. One thing to be aware of with debt agreements is that they do remain on your credit history for 7 years and getting any form of new credit during this time is highly unlikely.

A Personal Insolvency Agreement

Personal insolvency agreements are similar to debt agreements however in this case the terms and conditions are set out in a legally binding contract made between you and your creditors. Again, your total unsecured debts are pooled together and a proposal is made to your creditors regarding repayment.

Each of your creditors is allowed to vote for or against the proposal and you need to get a majority vote for the proposal to be accepted.
Most personal insolvency agreements run for 5 years after which you should have settled your debts in full. Again, this type of debt consolidation does show on your credit history for a maximum of 7 years and getting additional credit, including approval for a mortgage or finance for a car, will be virtually impossible.


Bankruptcy isn’t so much a form of debt consolidation as it is a way to write off your debts completely. This form of debt management should be your absolute last resort and should only be considered if you really can’t afford to pay any of your debts, secured or unsecured.
Bankruptcy may sound like the ideal way to become debt free however there are several major drawbacks to declaring yourself, or being declared, bankrupt.

The first is that any assets you own that have potential worth e.g. property, cars, heirlooms, antiques etc. will be seized and sold to pay something to your creditors. Your bankruptcy will also be visible on your credit history for 7 years and during this period you will not be allowed any form of credit.

Which form of Debt Consolidation is right for you?

Before deciding on a type of debt consolidation you need to look at the conditions for each and whether you qualify. You also need to work out how much you can afford to pay towards your debts each month and decide whether you want your credit history to remain clean.

If you can afford to pay a debt consolidation loan and you have the eligibility to apply for one then this should be your first choice. If however you are currently struggling to meet your debt commitments and you feel this inability to pay will continue for the foreseeable future then a form of debt agreement is going to be more beneficial.