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What is Debt Consolidation?

Debt Consolidation is a term loosely associated with a number of debt relief options. People call Debt Rescue each day looking for Debt consolidation to get a handle on their debts, without really knowing exactly what debt consolidation is.

In this article I am going to explore debt consolidation to find out exactly what it means and how you can achieve it.

Debt Consolidation is a buzz word

Debt Consolidation is a term thrown around quite a bit in the debt relief industry. Struggling Aussies ring us all day hoping to be able to consolidate their debts. When someone says they want to consolidate their debts they often mean they want to achieve 2 things:

  • Reduce their debt repayment amount to make it more affordable
  • Roll multiple debts together to be left with one repayment

There are certainly ways to achieve these things, but it’s often not the way most people think.

A Debt Consolidation Loan

The term debt consolidation comes from a debt consolidation loan. There was a time in Australia when banks would allow you to borrow a personal loan, enough to pay out your existing debts, and you would be left with one repayment and one set of interest and fees. This was at a time when credit card interest rates were exponentially higher than personal loans so the consolidation loan repayments were often far more affordable.

But times have changed in Australia and Debt Consolidation Loans are incredibly difficult to come by. In fact banks don’t offer debt consolidation loans and are strict with their lending criteria for personal loans. If you have a mark on your credit file, a default, a judgement or have applied for a fast cash loan, it will be near impossible to secure a loan to consolidate your debt.

This may seems strange for a bank to deny someone a loan in a time when they need it most, but in the long run, it is never a good idea to enter more debt to get out of debt. A Debt Consolidation Loan is just replacing your creditors and does very little to help you tackle your repayments.

So what options are there to reduce and simplify your debt repayments? It all depends on your situation.

Applying for Financial Hardship

If you are really struggling with your debt repayments the first person to talk to is your creditor. Creditors have hardship provisions in place for people who are struggling with their repayments. Often, they will allow you an extension of the debt or organize a payment arrangement where you pay interest only, principal only or a reduced agreed amount for a period of time.

This reduces your repayment and makes it very affordable, even if only for a short period of time.

A Part 9 Debt Agreement

A Part 9 Debt Agreement allows you to reduce your overall debt repayments, freeze interest and fees and only make one regular repayment towards your debts. It is a government legislated agreement between you and your creditors to help you repay your debts in an affordable and achievable way.

A Part 9 Debt Agreement is the step before Bankruptcy and is Part 9 of the bankruptcy act. It will be marked on your credit file for 5 years, but if you already have defaults or marks on your credit file, it will have already been impacted to the same capacity. Because you are attempting to repay your creditors to some degree, the restrictions and regulations that apply to bankruptcy won’t apply to you in a Part 9 Debt Agreement.

To enter a Part 9 Debt Agreement, you will need to be able to show some serviceability. In other words, you will still need to be able to make a regular repayment towards your debts.


If you are struggling to make any debt repayments and you don’t think you can even afford to make Debt Agreement repayments you will have to consider Bankruptcy. Although bankruptcy has some restrictions and regulations, it allows you to wipe your debts and forgo your responsibility to repay them. This relieves your stress of having to repay unaffordable debts, but it might also put you in a situation where you lose valuable assets, such as your home. You need to consider all your options before you enter into Bankruptcy.