How consolidation works
You take one larger loan, usually over a longer term, and use it to settle several smaller ones: store accounts, credit cards, short-term loans. Some lenders pay the old creditors directly and give you settlement letters; others pay the money to you, which leaves the settling to you. Ask which it is before you sign.
After that you have one instalment instead of several. If the old debts were repaid by PERSAL deduction, those deductions should stop once they are settled — check your next two payslips to be sure they do.
When it helps
Consolidation helps when the new loan's interest and fees are lower than the average of what you are paying now, when it replaces expensive short-term credit, and when the single instalment leaves you enough each month. It helps most if you close the old accounts once they are settled, so that the balances do not grow again.
A simple test: add up what you pay each month on the debts you want to replace and the total still owing on each, then ask the lender for the instalment and the total repayable on the new loan. If the new total is lower, or only a little higher in exchange for an instalment you can actually carry, consolidation is doing its job. If the total is much higher, you are paying for breathing room, and a payment arrangement may cost less.
When it makes things worse
A longer term lowers the instalment but raises the total you repay, because interest and the monthly service fee run for longer. If you keep using the store accounts and cards you settled, you can end up with the new loan and the old debts again within a year.
Be careful, too, with consolidation offered by anyone who asks for an upfront fee, your PERSAL details or your banking login before a loan agreement exists. A registered lender gives you a pre-agreement quotation first and never needs your banking PIN.
The limits that still apply
The lender must assess whether you can afford the new loan, looking at all your deductions and expenses. If it is to be repaid by PERSAL deduction, Treasury's limits apply: discretionary deductions may not exceed 40% of basic salary, of which loans and other non-insurance deductions at most 25%. Our guide on payroll deduction loans explains those limits.
If you are under debt review, a consolidation agreement is the only new credit the National Credit Act allows, and it should be arranged with your debt counsellor rather than on your own.
Comparing offers
Compare the total you would repay on the consolidation loan with the total left on the debts it replaces, including the months each has to run. Our page on personal loans for government employees lists registered providers that lend to public servants and explains what to check before you sign.