A debt consolidation loan replaces several debts with one loan, one rate and one repayment. The main benefits are simpler repayments and often lower interest. The main risks are a higher total cost over a longer term and running the cleared debts back up.
Yes, in most cases you can consolidate your debts into one loan. A lender pays out your existing balances, such as credit cards, store cards, buy now pay later accounts and personal loans. You then repay the lender through one fixed repayment schedule.
Whether you qualify depends on your income, your current debt levels and your recent repayment history. Under New Zealand's Credit Contracts and Consumer Finance Act (CCCFA), lenders must check that the new loan is affordable for you before they approve it.
Juggling four or five due dates is how payments get missed. One repayment on a set day is easier to budget for and easier to automate.
Credit cards and store cards often carry high rates. If the consolidation loan's rate is lower, more of each repayment goes to the balance and less goes to interest.
A credit card has no finish line. A consolidation loan with a fixed rate and a fixed term tells you exactly when you will be debt-free, provided you keep up the repayments.
Fewer bills and a lower repayment can ease the week-to-week pressure. Nomu Finance customers have told us that consolidating helped them get lower repayments and some extra breathing room.
Paying off revolving balances and then making on-time repayments builds a positive record. Research from TransUnion found that borrowers who used personal loans to consolidate reduced their credit card balances by 57% on average.
Stretching debt over more years lowers the repayment but raises the total interest. Here is an illustrative example, with fees ignored. A $12,000 loan at 15% p.a. costs about $416 a month over three years, with roughly $3,000 in interest. Over five years, the repayment drops to about $285 a month, but the interest rises to roughly $5,100.
Establishment fees and the rate you are offered decide whether consolidation saves money. If your offered rate is close to what you already pay, the saving is small or nil.
Recent defaults, arrears, lots of credit enquiries or tight affordability can lead to a decline or a higher rate. Each lender sets its own criteria.
This is the biggest risk. If you keep the paid-off cards open and use them, you end up with the new loan plus fresh card debt. Close the accounts or lower the limits once they are cleared.
Consolidation is usually a good fit when most of these apply to you:
Consolidation is a weaker fit if your debts are already on low rates, if you are close to paying them off, or if your income does not cover your basic costs. In that last case, a new loan will not fix the underlying shortfall.
New Zealand's Sorted money guidance and free financial mentors raise the same point. Consolidation is one tool among several, and the right choice depends on the size of your debt and your income.
A balance transfer moves card debt to a new card with a low introductory rate. It suits smaller balances you can clear before the introductory period ends. After that, the rate usually reverts to a standard card rate.
Free financial mentors, which you can reach through MoneyTalks, can help you build a budget and talk to your creditors about hardship arrangements. No new loan is involved.
A Debt Repayment Order, a No Asset Procedure or bankruptcy are last-resort options for debt you cannot realistically repay. They carry serious, long-lasting effects on your credit, so get independent advice first.
Debt consolidation is one of the core lending purposes Nomu Finance covers. We assess every application individually. We do not set a minimum credit score. Instead, we look at your overall credit profile, including:
Lenders on our panel offer fixed rates for debt consolidation loans of up to 29.95% p.a. An applicant with a low score may still be eligible with some lenders, while someone with a higher score may not qualify because of other parts of their profile. Eligibility is always subject to each lender's requirements. Turnaround times depend on how complete your application is and whether we need more information.
The online application takes about five minutes. Start your application to see whether a consolidation loan fits your situation.
The information in this article is general in nature and is provided for educational and informational purposes only. It does not constitute financial advice and should not be relied on as a substitute for personalised advice tailored to your individual circumstances.
Third-party information, rates, fees, and product details referenced in this article were current at the time of writing and are subject to change. Always confirm current details directly with the relevant company before making any decision.
Any examples, figures, or scenarios in this article are illustrative only and do not represent a credit offer or guarantee of approval. Lending criteria apply.
Nomu Finance Limited (FSP1011169) holds a Class 1 Financial Advice Provider (FAP) licence issued by the Financial Markets Authority. Personalised financial advice is only provided following a full assessment of your individual needs and circumstances by a Nomu Finance adviser.
If you are considering taking out a loan or making any financial decision, we encourage you to speak with an independent licensed financial adviser or get in touch with one of the team at Nomu, to get advice tailored to your circumstances.