Debt consolidation means taking one new loan and using it to pay off several existing debts, so you are left with one repayment instead of the juggle. It is the most advertised product in NZ consumer lending, and the advertising almost never mentions that it can go either way. Here is the version with the arithmetic left in.
When it genuinely works
When the new rate beats the old blended rate. Card and BNPL balances commonly run at rates far above what a reasonable credit file prices a personal loan at. Move expensive revolving debt onto a cheaper fixed loan over a similar timeframe and you simply pay less interest. This is the clean win.
When the juggle itself is the problem. Four due dates across four providers is how late fees happen to organised people. One fixed repayment aligned to payday is worth something real, especially if missed payments were starting to land on your credit file.
When it buys a finish date. Revolving debt has no end built into it. A fixed loan ends on a date you can circle, and for most people that date is the point.
The two traps
The stretch trap. Lower repayments over a longer term can cost more in total even at a lower rate. As a worked example using this site’s standard figures: $20,000 borrowed at 12.50% p.a. over 4 years costs about $248 a fortnight and roughly $25,800 in total. The same $20,000 at a lower 11.50% over 6 years costs only about $180 a fortnight, and roughly $28,100 in total. The “cheaper” loan costs about $2,300 more, because it runs two years longer. Repayment relief is real relief, but it is bought with total cost, and you should see both numbers before choosing. Our guide to total payable is entirely about this.
The empty-card trap. Consolidation pays your cards off; it does not close them. Cleared limits quietly refill, and a year later some people hold the loan and new card debt. If you consolidate, close the cards or cut the limits hard, the same day. This trap is behavioural, which is why no rate can fix it.
The honest checklist
Consolidation is probably right if the new loan’s total payable beats what your current debts will cost to clear, the term is no longer than it needs to be, you will close or cap the cards, and the single repayment genuinely fits your fortnight. It is probably wrong if you are a few months from clearing the debts anyway, the only attraction is a smaller repayment, or the card behaviour that built the balance has not changed.
How to compare it properly
Price the consolidation loan with every cost included (rate, establishment fee, total payable) and set it next to what staying put costs. That comparison is exactly what a debt consolidation loan offer through BorrowClub shows, and if staying put wins, the adviser’s job is to say so. For the no-loan routes, start with snowball versus avalanche.