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Click here to be directed to CashPal ️Many Australians use small personal loans to tidy up messy little debts like store cards, BNPL balances and unpaid bills. In this guide, we’ll explain how consolidating small debts into one loan can cut interest costs, simplify your budget and help you get out of debt faster, without ignoring the risks.
Most people do not get into trouble from one large expense. It is usually a pile of smaller debts that build up over time.
Typical examples include:
Each debt has its own due date, interest rate and fees. Even if every balance looks small, the combined repayments can chew through your pay and make it hard to stay on top of everything.
Recent figures from Money.com.au show Australians hold a total of about $43.57 billion in credit card debt, with an average monthly balance of around $3,558 and an average interest rate of 18.61% per year on balances that accrue interest.
On top of that, Canstar analysis using Reserve Bank data shows a typical cardholder with about $5,330 in credit card debt who makes only the minimum repayment at 18.61% can pay roughly $15,891 in interest and take about 39 years to clear the balance if they do not change their behaviour.
For many households, this type of debt sits alongside small personal loans, buy now pay later accounts and other short term credit. That is where consolidating little debts into one small personal loan can start to make sense.
A small personal loan is a fixed amount, for example between $500 and $5,000, that you repay over a set term with regular instalments.
When you use a small personal loan for consolidation, you borrow enough to pay out several small debts at once. Instead of paying three or four different lenders, you move to one repayment on one loan with one interest rate and fee structure.
For example, you might use a $4,000 personal loan to clear a maxed out credit card, a couple of buy now pay later accounts and an overdue utility bill, then focus on paying only the personal loan.
There are three main ways a small personal loan can help with little debts.
First, moving high interest balances to a lower interest personal loan can cut the total interest you pay, provided you do not extend the term too far.
Second, fixed repayments and a clear end date make the debt more predictable. You know exactly when the loan will be repaid if you keep up your instalments, which is very different to rolling credit card balances.
Third, consolidation can simplify your budget. Instead of tracking many small payments, you focus on one repayment that you line up with your pay cycle.
Government backed resources like Youth Central point out that if you consolidate several high interest debts into a lower rate personal loan and keep your repayments at the same level as before, you can save hundreds or even thousands of dollars and pay off the debt months or years sooner.
Debt consolidation is not a cure for bad spending habits. If you pay off your cards with a small personal loan and then run those cards back up again, you can end up worse off.
National Debt Helpline and Moneysmart both warn that consolidation can cost more overall if the new loan has higher fees or a much longer term. You might enjoy cheaper monthly repayments, but pay more interest over the life of the loan.
Small personal loans will also not suit someone already in serious financial hardship who cannot currently meet essential bills. In those cases, free financial counselling and hardship assistance with existing creditors usually comes before new credit.
The Canstar analysis of an average credit card debt of $5,330 at 18.61% is a useful warning. If the borrower pays only the minimum each month, they are still paying that debt off almost four decades later and have paid more than three times the original balance in interest.
In that same example, increasing repayments by $150 a month cuts interest from nearly $15,900 to about $2,300 and clears the debt in just over four years. That is not a personal loan scenario, but it shows how powerful higher fixed repayments can be when you lock in a plan.
When you move several little debts into a small personal loan at a lower rate and keep your repayments high, you are applying the same principle. More of each repayment goes to the principal instead of interest, and you give yourself a realistic finish line.
Take another case that Youth Central outlines. Someone who consolidates multiple high interest debts into a lower rate personal loan and keeps making the same $500 monthly payment can knock years off their repayment time and save thousands of dollars in interest. The key is that they do not drop their repayments just because the new minimum is lower.
A small personal loan for consolidation can affect your credit report in several ways.
RateCity explains that if you manage a consolidation loan well, with on time repayments over the full term, this pattern of positive repayment history can gradually improve your credit score.
At the same time, any new credit application creates an enquiry on your file. If you apply with several lenders in a short period or miss repayments on the new loan, your score can suffer.
In practice, a well managed small personal loan that replaces multiple late or missed payments on small debts can be a net positive for many borrowers. The opposite is also true. A poorly managed consolidation loan on top of existing debts can drag your credit score down and limit future borrowing options.
This is also the point where it can help to talk to a financial counsellor through the National Debt Helpline or read through Moneysmart guidance so that you understand all your options.
A lender like CashPal offers small personal loans between $500 and $5,000 that can be used to combine several little debts into one structured repayment.
Because CashPal loans have fixed terms and repayments aligned with your pay cycle, they can be easier to budget for than juggling multiple card and buy now pay later payments. Used well, that structure can help you clear what you owe and then step away from high interest short term credit.
It is still important to borrow only what you need, avoid taking on new debts during the loan and reach out for hardship help if your situation changes.
A small personal loan is only one way to deal with little debts.
Free financial counselling through the National Debt Helpline can help you negotiate payment plans directly with your existing lenders. In some cases, creditors will agree to reduced interest, longer terms or temporary pauses.
For some people, a balance transfer credit card or hardship variation on an existing loan can be more suitable than a new personal loan. Others may be better served by budgeting support, extra income or community support while they stabilise their finances.
If you are already falling behind on essential bills such as rent, utilities or food, it is usually safer to speak with a financial counsellor, community legal service or community organisation before taking on any new credit.
Is a small personal loan the same as a payday loan?
No. A small personal loan is usually a fixed term loan with a clear schedule of repayments and a defined end date. A payday style loan is a very short term product that is often repaid from your next pay and can carry high fees.
CashPal provides small personal loans, not payday loans, and works within responsible lending obligations.
Small personal loans used for consolidation often range from around $500 up to $5,000. The amount you can borrow depends on your income, expenses, credit history and the lender’s criteria.
At CashPal, loan amounts sit within that general range and are assessed against your ability to repay without causing hardship.
Shorter terms usually mean higher repayments but lower total interest. Longer terms reduce the monthly cost but can increase the overall amount you pay.
Many borrowers choose a term that matches how quickly they want to be debt free while keeping repayments realistic. As a rule of thumb, aim for the shortest term you can comfortably afford.
Yes, provided the lender allows debt consolidation and you borrow enough to pay out those balances in full. Many Australians use one small personal loan to clear store cards, buy now pay later balances and small credit card debts.
You still need to close or reduce the old accounts afterward, otherwise you risk using them again and ending up with more debt.
A declined application is a sign that a new loan may not be affordable at the moment. Instead of applying with multiple lenders, which can harm your credit score, consider contacting the National Debt Helpline or a free financial counsellor.
They can help you understand your options, negotiate with creditors and build a plan that does not rely on new credit to manage existing debts.
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With years of experience under our belt, we can provide some tips & tricks to help you save
