The average Australian household carries around $20,000 in non-mortgage debt. At the average credit card rate of 20.99%, that slice of debt alone costs more than $4,000 a year in interest if you only make the minimum payment. That’s not paying down what you owe — it’s paying for the privilege of still owing it.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Those figures come from the Reserve Bank and independent trackers. They cover credit cards, personal loans, buy now pay later balances, and car loans — everything except mortgages. The picture varies by income and age, but one pattern holds: the longer you carry the debt at high interest, the more the lender earns and the less you keep. Knowing exactly what you owe, at what rate, and to whom is the only place to start. Here’s what you actually need to know.
Key takeaways and the one concept that ties them together
Most people I talk to overestimate how much they owe in total but underestimate the interest rate they’re actually paying. The gap between the two is where the trouble grows. The central concept here is the debt avalanche — a method that targets the debt with the highest interest rate first and works down from there. It’s the mathematically optimal approach, though not always the easiest to stick with.
If you’re not sure where to start, a broader look at proven debt strategies can help you see which approach fits your situation before you commit to one.
Interest rates, debt types, and what each one actually costs you
Not all debt is the same, and the interest rate tells you which one is costing you the most per dollar owed. Credit cards sit at the top, personal loans and car loans in the middle, and buy now pay later accounts — often interest-free if paid on time — can still carry fees that eat into any savings.
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| Debt type | Typical interest rate | Average balance |
|---|---|---|
| Credit card | 18.80% – 20.99% | $3,454 per account |
| Personal loan (unsecured) | 7% – 14% | $10,000 – $30,000 |
| Car loan | 7% – 9% | $15,000 – $40,000 |
| BNPL (on-time payment) | 0% (fee-based if late) | $200 – $1,000 |
| HECS-HELP | Indexed to CPI (~3–4%) | $25,000 average |
If you carry a credit card balance at 20% and a car loan at 8%, the card is costing you more than twice as much per dollar. The avalanche method would throw every spare dollar at the card first. The difference in interest paid between the two approaches — avalanche versus targeting the smallest balance first — can run to $2,000 over the repayment period, according to research from SavingsMate. That’s real money that could go into an emergency fund instead of a lender’s pocket. If you’re unsure which debt to target first, a conversation with a finance professional can help clarify the trade-offs between repayment strategies.
Where people slip up — and how to avoid the same mistakes
Not asking for a better rate before paying a cent
Most people never call their credit card issuer to ask for a lower rate. Under the National Credit Code, licensed credit providers must consider hardship applications and respond within 21 days. Banks routinely drop credit card rates from 20-22% down to 12-15% when a customer calls the hardship team directly. That’s a 40% reduction in interest cost on the same balance. The number is different from general customer service and is listed on the lender’s website. What tends to make sense here is making that call before you commit to any repayment plan — it lowers the mountain before you start climbing. If you’re unsure what to say to a lender, a business law specialist can help you understand your rights under the National Credit Code before you call.
Picking a strategy that looks good on paper but fails in practice
The avalanche method saves more money. The snowball method — paying off the smallest balance first — costs a bit more in interest but keeps people motivated because they see debts disappear faster. Research suggests most people stick with the snowball method longer for that reason. The mistake is choosing the one that sounds more impressive rather than the one you’ll actually follow for twelve months. A spreadsheet won’t keep you going. A clear win in month two might.
Ignoring your credit report until it’s too late
Old accounts, collection debts, and incorrect listings can all sit on your credit file without you realising. You can check your report for free through Equifax, Experian, or illion. Missing a debt that has already gone to collections means your repayment plan is incomplete before it starts. Fixing errors on your report can also improve your score, which matters if you eventually want to refinance or consolidate at a better rate.
Paying for help you could get for free
Paid debt management firms charge application fees and ongoing service fees. Since 1 July 2021, they must hold an Australian Credit Licence and be members of AFCA. But the National Debt Helpline (1800 007 007) provides the same service — negotiating with creditors, reviewing your options, building a plan — at no cost. A financial counsellor can also call your creditors on your behalf if you’re uncomfortable doing it yourself. The free option should always come first.
How to actually work through your debt, step by step
Start with a hardship conversation
Before you rearrange your budget or choose a repayment method, call each lender’s hardship team. Tell them you’re struggling to meet the repayments and ask what options they offer. Under the National Credit Code, they must consider your request in writing and respond within 21 days. You can request a reduced interest rate, a temporary payment pause of one to three months, extended repayment terms, or a waiver of late fees. If the lender agrees, get the new terms in writing before you make any changes to your payments.
- 1Find the hardship team numberIt’s different from general customer service. Look on the lender’s website under “hardship” or “financial difficulty.”
- 2Prepare your numbersKnow your balance, current rate, minimum payment, and what you can afford to pay each month.
- 3Make the callAsk for a rate reduction, fee waiver, or payment pause. Be clear about what you need and why.
- 4Get everything in writingIf they agree to new terms, request a letter or email confirming the changes before you stop making the old payments.
Choose between avalanche and snowball — deliberately
Both methods work. The difference is in the trade-offs. The avalanche saves you $500 to $2,000 in interest over the repayment period. The snowball gives you psychological wins in the first few months. Which one you pick depends on whether you’re more motivated by money saved or by momentum gained.
Avalanche (highest rate first)
- Costs least in total interest over time
- Mathematically optimal
- Better if you have a large balance at a very high rate
Snowball (smallest balance first)
- Builds momentum with quick wins
- Higher total interest cost
- Better if you have multiple small debts and need motivation
When a formal debt agreement might be the right call
A Part IX Debt Agreement is a legally binding arrangement under the Bankruptcy Act 1966. It lets you repay a portion of your unsecured debts over three to five years, with interest frozen and creditors barred from taking legal action. Creditors vote on the proposal; if a majority by value accept, all are bound. The catch is that a Part IX agreement stays on your credit report for five years and appears on the National Personal Insolvency Index permanently. It also restricts you from obtaining credit above $6,354 without disclosing the agreement. This is a serious step, not a quick fix. If you’re considering it, it’s worth speaking to a free financial counsellor first to see whether an informal hardship arrangement could achieve the same result without the credit impact. Given the legal implications, it’s worth running your situation past a qualified business adviser before entering a formal agreement.
Consolidation and balance transfers — timing is everything
Consolidating multiple debts into a single personal loan at a lower rate can simplify payments and reduce interest. A 0% balance transfer on a credit card works the same way: move your balance, pay no interest for a set period, and use that window to pay down the principal. The risk is that the honeymoon period ends and the rate jumps back up. If you consolidate, close or reduce the limits on the old cards so you don’t run them back up. And pick the shortest repayment term you can afford — stretching a loan over five years at a lower rate still costs more in interest than paying it off in two.
Frequently asked questions
What happens if I miss a hardship payment deadline? ▾
Does a debt snowball cost significantly more than avalanche? ▾
Can I include my mortgage in a Part IX debt agreement? ▾
Will a debt agreement stop collectors from calling? ▾
How long does a hardship arrangement stay on my credit file? ▾
The path to debt-free starts with the call you’re avoiding
The single action that changes the most for the most people is picking up the phone to a lender’s hardship team before you’ve done anything else. A rate cut from 20% to 14% on a $5,000 balance saves you $300 a year without you having to earn an extra dollar. Combine that with a strategy you can actually follow — avalanche or snowball, your call — and the average $20,000 household debt becomes a manageable timeline rather than a lifetime sentence.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Budgeting Like a Boss: Practical Tips for Aussie Living Costs.
Sources and Further Reading
Stop Living Paycheck to Paycheck: Proven Strategies to Break the Cycle in Australia — Practical tips for freeing up income to put toward debt repayment.
The Real Cost of Convenience: Mindful Spending in a Fast-Paced World — How small spending habits add up and where to cut back.
SavingsMate (2024). How to Get Out of Debt Australia. 🔗
Money.com.au (2024). Credit Card Statistics. 🔗
Finder (2024). Credit Card Statistics — Finder RBA Data. 🔗
National Debt Helpline. Free financial counselling. 🔗
