Rolling Debts Into Your Home Loan – When Debt Consolidation Helps (And When It Doesn’t)

If you’re juggling credit cards, personal loans or buy-now-pay-later balances, refinancing to consolidate debt can feel like a lifeline. Lower interest rates, one repayment and better cash flow — it all sounds like a no-brainer. But there are moments when it works beautifully, and moments when it can actually slow you down.

This guide helps you understand when debt consolidation is a smart move, how it works and the traps to avoid.

1️⃣ What Is Debt Consolidation Through Refinancing?

Debt consolidation is when you roll multiple higher-interest debts into your home loan. Because home loan rates are usually much lower than credit card or personal loan rates, your monthly repayments often drop dramatically.

One repayment instead of several.
Lower interest rate on the debt you’re consolidating.
Simpler cash flow and less financial stress.

2️⃣ The Biggest Benefits of Consolidating Debt Into Your Home Loan

When done correctly, debt consolidation can be a powerful reset.

Immediate cash flow relief: Lower monthly payments and fewer bills.
Lower interest costs: Home loans often have far cheaper rates than credit cards and personal loans.
Improved credit score: Clearing multiple debts can tidy up your credit profile.
Less mental load: One repayment is easier to manage than five.

3️⃣ The Trap: Extending Short-Term Debt Over 30 Years

This is the part many people don’t realise. Yes, repayments go down — but if you stretch short-term debt (like a personal loan) over your home loan’s 25–30 year term, you may pay more interest overall.

You get cash flow relief now…
…but total interest paid can increase if you’re not disciplined.

That’s why the strategy needs to be managed with a proper repayment plan.

4️⃣ How to Avoid Paying More Interest in the Long Run

If you’re consolidating debt, these steps protect you from overpaying:

Keep your loan term the same instead of restarting a fresh 30 years.
Set up automated extra repayments targeting the consolidated amount.
Avoid redrawing the consolidated balance back out again.
Use an offset account if your loan includes one to reduce interest.

Debt consolidation should make life easier — not drag your debt out longer.

5️⃣ When Debt Consolidation Is a Good Idea

Consolidation is usually beneficial when:

Your credit cards or personal loans have high interest rates.
You’re struggling to manage multiple repayments.
Your home equity is strong enough to absorb the debt safely.
Your income is stable and you can set a repayment plan.
You want to reset your financial position and improve your credit score.

In these cases, refinancing can give you immediate breathing room.

6️⃣ When Debt Consolidation Might Not Be the Best Move

There are moments where it’s not the right strategy:

Your spending habits haven’t changed.
You have a habit of reusing credit cards once cleared.
Your LVR would jump above 80% (which may trigger lenders mortgage insurance).
Your property value has dropped, reducing usable equity.
Your income is unstable and the lender may decline the application.

Consolidation works best when it’s paired with positive financial behaviour.

7️⃣ What You Need to Apply for a Debt Consolidation Refinance

Lenders typically ask for:

Recent bank statements showing repayment history.
Credit card, personal loan or BNPL statements.
Last 3–6 months of income evidence.
A snapshot of your living expenses.
Your current home loan statement.

The more organised your documents, the quicker the process.

8️⃣ What the Process Looks Like (Start to Finish)

The consolidation refinance process usually goes like this:

1. Review your debts and calculate how much needs to be consolidated.
2. Check borrowing capacity to ensure the lender will approve it.
3. Order a valuation so the lender can confirm your equity.
4. Apply for the new loan covering your existing balance plus the debts.
5. Settlement — the new lender pays out all your debts directly.
6. Start fresh with one simplified repayment.

This usually takes 2–4 weeks depending on lender timelines.

🔟 The Smartest Way to Start

If you’re unsure whether debt consolidation will help or hurt your long-term position, a broker can model both scenarios side-by-side:

The repayment difference.
The total interest difference.
The impact on your loan term.
Whether your equity is strong enough.

Want a personalised debt consolidation plan?

Book a free refinance strategy session with the Loan Location team. We’ll help you compare the pros, cons and long-term impact before you choose a path.