Should you refinance every debt or leave some separate?

Key points

• Including every balance can simplify repayments, but a small low-rate or nearly finished debt may make the new loan larger and more expensive than it needs to be.
• Test each debt twice.
• Do not leave a debt out of the affordability calculation merely because it is excluded from the new loan. Its repayment still competes with the refinance repayment.
• Use actual provider terms and dated figures. Eligibility, rates, limits and fees vary.

Including every balance can simplify repayments, but a small low-rate or nearly finished debt may make the new loan larger and more expensive than it needs to be. Partial consolidation can be reasonable when the excluded debt has a clear, affordable path.

Start with what you owe now, what the current arrangement costs and what needs to improve. You may care most about total cost, a repayment that fits payday, fewer due dates or a clear finishing date. Write that priority down before looking at another product so the comparison does not shift around the offer in front of you.

Start with the decision you are actually making

Test each debt twice. First include it in the refinance. Then leave it out and keep its real repayment in the budget. Compare total cost, monthly pressure, finishing dates and the chance that separate repayments will be missed.

Use current statements and provider documents where you can. App balances are useful for a quick snapshot, but payout amounts, pending interest and offer terms can change the amount needed to complete a transfer or refinance. Mark anything that is only an estimate. If a provider gives you a personalised offer, replace the advertised figures in your comparison with the figures in that offer.

Keep cash flow and total cost on separate lines. A change can reduce this month’s scheduled repayment because the debt is spread over longer. That may be a considered choice when the current repayment is not sustainable, but it should not be described as a saving unless the full cost is lower after interest and fees.

A worked example

You have a $12,000 credit card, a $7,000 personal loan and a $900 BNPL balance due to finish in two months. Rolling the $900 into a four-year loan may reduce this month’s deductions, but it can turn a short commitment into years of interest. Leaving it separate may be cheaper if those two months are manageable.

The figures in this example are illustrative. They show the method, not a current product or the result you would receive. Run the comparison again with your own balance, term, offer rate, fees and repayment. If the decision involves several debts, include every minimum repayment that will remain after the change.

The useful result is a small set of numbers you can check:

• the amount that will actually move or be paid out
• every upfront and ongoing fee
• the repayment you plan to make, not only the minimum
• the date the promotional rate or loan term ends
• the total amount likely to be repaid
• any debt, limit or regular payment left behind

Model the debts you plan to include and leave out. Keep excluded repayments in the budget so the result reflects the full position.

Questions to answer before applying or signing

• Which debts are expensive or hard to manage?
• Which will finish soon without refinancing?
• Does the new loan have a minimum amount?
• Will excluded repayments still fit beside the new repayment?

Answer these from documents where possible. When a term is unclear, ask the provider how it applies to your amount and intended settlement date. Keep the answer with the offer. This gives you something concrete to compare and reduces the risk of making a formal application simply to discover basic product rules.

It is also worth checking both the good month and the awkward month. Add car rego, quarterly utilities, school costs, medical spending or other irregular commitments that do not appear in a neat monthly budget. A repayment that works only when none of those costs arrives is unlikely to feel manageable for long.

Check the whole position after the change

A transfer or refinance can affect more than the balance receiving a lower rate. An old account may stay open, a small residual amount may remain, or a separate repayment may still be due. Confirm each intended payout, keep making required payments until closure is confirmed and save the final statements.

Install WeMoney and connect your accounts before comparing refinance or consolidation options. You can see your debts, balances and repayments beside your income and spending, which makes it easier to understand the full financial picture the new repayment would need to fit.

WeMoney uses your connected accounts and credit information to show personalised savings opportunities in the For You section. These may include debt consolidation, credit-card payoff or personal-loan refinancing where they are relevant to your position. Open the app to see your personalised opportunities, then compare any offer with your current debts using the checks in this guide. Potential savings and approval are not guaranteed.

When another option may fit better

Do not leave a debt out of the affordability calculation merely because it is excluded from the new loan. Its repayment still competes with the refinance repayment.

If the numbers do not improve the outcome you care about, keeping the current arrangement and paying it down may be reasonable. You can also ask current providers about a lower rate, a changed due date or hardship assistance. Those paths do not all produce the same credit, cost or contractual result, so compare what each would actually change.

If you cannot cover essentials or the next required repayment, deal with that pressure first. Contact the provider’s hardship team or speak with a free financial counsellor through the National Debt Helpline. A new application is unlikely to create reliable breathing room when the proposed repayment still does not fit.

A final check

Before committing, read the offer once without the promotional headline. Look only at the amount provided, debts paid, rate, comparison rate where relevant, fees, repayment, term, end date and total amount repayable. Then compare those fields with your current position and the manual plan you could follow without switching.

Keep the option only if it produces an improvement you can explain in plain language. It might lower the estimated total cost by more than the fees, bring the finishing date forward, or turn several difficult due dates into one affordable repayment. If the only change is a smaller repayment created by a much longer term, name that trade-off before deciding.

Sources

• MoneySmart: Personal loans
• MoneySmart: Debt consolidation and refinancing
• OAIC: Information on your credit report

This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.