Australians in their 20s and 30s are carrying a heavy load. The average Australian household owes roughly $261,000, with mortgage debt making up the bulk of that figure, but personal debt — credit cards, car loans, and buy-now-pay-later schemes — adds thousands more to the typical balance sheet. For someone earning a median full-time salary of around $98,000, that kind of debt can eat up a third or more of take-home pay before rent or groceries are even touched.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Debt isn’t inherently bad — a mortgage on a home that appreciates or a student loan that boosts earning potential can be productive. The trouble starts when high-interest debt crowds out savings, investments, and the ability to handle an unexpected bill. For younger Australians, the gap between what they earn and what they owe often feels like it’s widening faster than they can close it. Here’s what you actually need to know.
Four Things to Know About Getting Out of Debt
One term you’ll hear a lot in this space is debt avalanche. That’s the method where you list every debt by its interest rate, pay the minimum on everything, and throw every spare dollar at the highest-rate debt first. The opposite approach — debt snowball — targets the smallest balance first for psychological wins. The avalanche method saves more in interest, but the snowball method keeps more people on track. What I tend to notice is that the best method is the one you’ll actually stick with for more than three months.
Interest Rates, Minimum Payments, and the Real Cost of Carrying Debt
The numbers that matter most aren’t the balance you owe — they’re the interest rate and the minimum payment structure. A credit card charging 20% interest on a $10,000 balance costs roughly $2,000 in interest in the first year if you pay nothing off. Even if you make the minimum payment of 2% of the balance each month, you’re still adding around $1,600 in interest annually while only reducing the principal by a few hundred dollars.
Personal loans and car loans typically sit between 8% and 15%, while buy-now-pay-later services like Afterpay charge no interest if you pay on time but can hit you with late fees that effectively cost 25% or more annualised. HECS-HELP loans are indexed to inflation (currently around 4–5%) and only require repayment once your income exceeds roughly $51,000 — but the balance grows with inflation, so a slow repayment path means you pay more in real terms.
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| Debt Type | Typical Interest Rate | Minimum Payment | Time to Clear $5,000 (min payment) |
|---|---|---|---|
| Credit Card | 18–22% | 2% of balance | 20+ years |
| Personal Loan | 8–15% | Fixed monthly | 3–7 years |
| Car Loan | 7–14% | Fixed monthly | 3–5 years |
| Buy Now Pay Later | 0% (on time) / 25%+ (late fees) | Fortnightly instalment | 6–12 weeks |
| HECS-HELP | Indexed to CPI (~4–5%) | Income-contingent | Varies by income |
What this means in practice: a $5,000 credit card balance paid at the minimum rate costs you roughly $8,000 in interest over two decades. The same $5,000 on a personal loan at 10% over three years costs about $800 in interest. The gap between these two outcomes is where most people lose money without realising it.
Where People Slip Up
Treating all debt as the same problem
Not all debt behaves the same way. A HECS-HELP loan that grows with inflation and only requires payment above a threshold is fundamentally different from a credit card charging 20% interest that compounds daily. The mistake is throwing extra money at the student loan while the credit card balance sits untouched. The research shows that prioritising high-interest debt first saves thousands, but many people feel more pressure to clear the “big” number on their HECS statement.
Consolidating without closing the old accounts
Debt consolidation can lower your monthly payment, but it only works if you stop using the old credit lines. A common pattern: someone rolls $8,000 of credit card debt into a personal loan at 10%, then runs the card back up to $5,000 over the next year. They now owe $13,000 instead of $8,000. If you consolidate, close the old accounts or cut up the cards — otherwise the math works against you.
Ignoring the compounding effect of minimum payments
Minimum payments are designed to keep you in debt as long as possible. On a $3,000 credit card balance at 19% interest, the minimum payment of $60 per month barely covers the interest. After a year, you’ve paid $720 and still owe roughly $2,900. The system works exactly as intended — for the lender. The fix is to set a fixed payment amount that clears the balance within 12–24 months, not whatever the statement says is the minimum.
Using buy-now-pay-later as a budgeting tool
BNPL services feel like a way to spread out costs, but they encourage spending you wouldn’t otherwise do. A 2023 survey by the Australian Securities and Investments Commission found that one in six BNPL users had cut back on essentials like food or utilities to make repayments. If you’re using Afterpay for groceries or bills, that’s a sign the budget itself needs fixing, not just the payment method.
Building a Repayment Plan That Actually Works
Audit every dollar going out
Before you can pay off debt faster, you need to know where the money is going. Pull three months of bank statements and categorise every transaction. Most people find at least $200–$400 per month going to subscriptions, takeaway coffee, and impulse purchases they barely remember. That’s money that could be redirected to debt. A simple spreadsheet or a free budgeting app is enough — you don’t need a paid tool for this.
Choose your repayment method and automate it
Once you know how much you can redirect, pick either the avalanche or snowball method and set up an automatic transfer on payday. If you’re using the avalanche method, the highest-rate debt gets the extra payment. If you’re using the snowball, the smallest balance gets it. The automation is the key — if you have to manually transfer money each month, you’ll find reasons not to. Set it and forget it.
Negotiate lower rates where you can
Credit card providers and personal loan lenders will often lower your interest rate if you ask. A single phone call can drop a 20% card to 15% or even 12% for six to twelve months. That’s not a permanent fix, but it buys you time to make a dent in the principal. The same applies to utility bills and insurance — every dollar saved on regular expenses is a dollar that can go toward debt.
Build a small emergency buffer first
This sounds counterintuitive — why save when you owe money? — but without a $1,000–$2,000 emergency fund, any unexpected expense (car repair, medical bill, appliance failure) goes straight onto a credit card at 20% interest. That erases months of repayment progress. A small buffer means you can handle surprises without borrowing more. Once the buffer is in place, every spare dollar goes to debt.
What’s changing in 2025
The Australian government is introducing new regulations for buy-now-pay-later providers that will require them to perform credit checks and affordability assessments, similar to credit cards. That means BNPL debt will start showing up on credit reports, which could affect your ability to get a mortgage or car loan. If you’re planning to buy a home in the next few years, reducing BNPL usage now will help your credit profile.
Frequently Asked Questions
Should I pay off my HECS-HELP loan early? ▾
Can I consolidate debt with bad credit? ▾
What happens if I miss a BNPL payment? ▾
Is it better to save or pay off debt first? ▾
How does debt affect my mortgage application? ▾
What’s the fastest way to pay off $10,000 in credit card debt? ▾
Debt Freedom Is a System, Not a Single Decision
The difference between someone who gets out of debt and someone who stays in it isn’t income — it’s whether they have a system. Automating payments, choosing one method and sticking with it, and building a small buffer before tackling the big numbers are what separate the two outcomes. The research is clear: people who set up automatic transfers and remove spending triggers succeed at far higher rates than those who rely on budgeting apps and willpower alone.
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 Avoiding the Aussie Consumerism Trap: Smart Spending Habits.
Sources and Further Reading
Financial Independence: What It Really Means for Australians — A deeper look at how debt repayment fits into the broader picture of building wealth and financial freedom.
Beyond Savings: 7 Smart Investments Every Aussie Should Consider — What to do with your money once high-interest debt is cleared and you’re ready to start investing.
Australian Bureau of Statistics (2024). Household Debt and Wealth. 🔗
Reserve Bank of Australia (2024). Financial Stability Review. 🔗
Australian Securities and Investments Commission (2023). Buy Now Pay Later: An ASIC Report. 🔗
Financial Rights Legal Centre (2024). Debt and Financial Stress in Australia. 🔗
