How you tackle your debts may make a big difference to what you pay in the long run.

There are many different types of debt out there, and it’s likely that at some point in your life you have owed money, whether it’s your HECS debt/student loan, a mortgage, car loans or credit card debt.

Australians are accumulating more debt, with research showing that the money Australians owe, in comparison to the money they earn, has almost tripled over the last three decades1, with the average household debt currently sitting at around $245,0002.

Having debt can have its advantages, but generally only if you have good debt management, and if you’re prepared for unexpected events that may leave you vulnerable.

What is bad debt and good debt?

If you’ve looked into the different types of debt available in Australia, you may have come across the terms ‘good debt’ and ‘bad debt’. All debt costs money and needs to be repaid, but not all debt is equal. What separates good debt from bad debt is the ability for that debt to help you build wealth over time.

Debt could be viewed favourably if you’re using it to invest in an asset, such as property or shares, which may generate an income over time, and/or grow in value so you can sell it for a profit at a later stage.

To define bad debt, it helps to think of any money that you have borrowed to pay for day-to-day expenses like groceries, things like an overseas holiday or expensive pair of shoes.

More than 90% of household debt in Australia is spent building wealth and buying a home to live in (in other words, on ‘good debt’), rather than purchasing consumable items3.

9 tips to manage your debts

Debt management can be a useful skill to have when it comes to managing money, saving and planning for the future. Whether it's a credit card, personal loan, student tuition, car finance or home loan you’re paying off, these tips and debt reduction strategies may help you pay off your debts sooner (become debt free).

Track debt by working out the debts you have and what they total

If you’re trying to figure out how to manage your debts, a good starting point is to make a list of how much you owe and to which providers, and how much you pay in fees and interest. While this could be unpleasant, it helps to get a realistic view of exactly how much you have to pay back, and how different interest rates and provider fees can affect the amount you have to pay.

Compare what you earn, owe and spend

In addition to having a realistic view of how much you owe, it can also help to have a realistic view of how much money you have coming in and how much money you are spending. 

Create a budget and jot down:

  • your money coming in (such as income from your job or extra money from things like investments)
  • how much you need for essential expenses like rent, groceries, and bills
  • any additional spending you have on non-essentials, like pay TV or eating out
  • the amount you have left over (if any).

By doing this, you can identify where there may be room for movement and where you could save a little bit extra here and there to add to your repayments.

See if you can consolidate loans into one payment

Multiple debts can mean multiple fees and interest charges, which is why consolidating debts into a single loan with a lower interest rate could be an option that can help you save you money (depending on how much you owe).

If you consolidate loans into one payment, it may also be easier to manage because you’ll potentially only need to make one repayment rather than having to juggle several. But before you make any decisions there are a few things to consider, such as if your lender is licenced by ASIC, and if you’ll really be saving money once you factor in all the interest rates, fees and any additional charges.

Also, keep in mind that debt consolidation will only be effective if you make your repayments on time, otherwise you may end up paying more in fees and interest. 

Pay your debts on time

Time management and debt management often go hand-in-hand, and paying your debts on time can prevent you from accumulating additional expenses from late fees or interest charges. Consider setting up alerts to remind you when payments are due, or paying by direct debit on a monthly or fortnightly basis

.It also helps to remember that late payments could affect your credit report, which includes your personal details, the types of credit you’ve applied for and details about your repayment history.

Credit providers use this information to assess whether they want to lend to you, so if you’re regularly missing payments or your history isn’t good, you may have problems getting approval for a loan later on.

Try to pay the full amount outstanding rather than minimum amount owing

When you’re making repayments, you typically get two options: to pay the full amount that you owe, or to pay the minimum amount owing.

While it might be tempting to only pay the minimum amount owing, keep in mind that you can still incur interest on the balance that’s leftover, and this means you could end up owing more money. On the other hand, if you’re able to pay the full amount, typically you won’t be charged any interest at all.

Look at whether you can afford to make extra repayments

One of the common debt reduction strategies is to make extra repayments on top of your regular repayments. Making extra repayments can help you pay off what you owe at a faster rate, and you’ll typically pay less interest. Depending on what you owe, this could mean thousands of dollars in savings.

Before making extra repayments, it can be useful to look at the conditions of your loan, as some lenders might charge you for paying off the debt early.

Shop around for a better deal

High interest rates and added fees can really affect how much you pay back on top of the principal amount (the base amount you owe). If you have a loan or credit card, you could save money just by using comparison sites to shop around, and see if another provider can offer you lower interest rates and fees, or more suitable repayment conditions.

Have a contingency plan

When it comes to debt management, it always helps to expect the unexpected. Your provider could increase interest rates or change their repayment terms, or you could have changes in your own employment or health, that could prevent you from working or making repayments. By having a contingency plan, such as an emergency savings fund, you could potentially avoid missing repayments, or accumulating more debt.

Know you can reach out

If you’re finding it hard to keep up with your repayments, consider calling your providers as soon as you can to tell them you’re experiencing financial hardship. Most providers have a provision for bad debt (an amount they estimate is uncollectible), and there may be people within their company who can assess your situation and work with you to find an alternative payment plan that could assist you during difficult times.

In addition, you can also seek free financial counselling through the National Debt Helpline, either by calling on 1800 007 007 or visiting their website.


1, 2, 3 AMP.NATSEM Report – Buy now, pay later: Household debt in Australia pages 4 (paragraph 2), 3 (paragraph 4), 7 (headline)

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