How to Get Out of Debt in Australia — A Step-by-Step Guide

Getting out of debt requires a clear plan, consistent action, and — often — some behavioural change. Whether you carry credit card debt, personal loans, car finance, or buy now pay later (BNPL) balances, the process follows the same principles.

Step 1 — Know Exactly What You Owe

List every debt you have:

Most Australians underestimate their total debt. Running this list is an essential — and often confronting — first step.

Step 2 — Stop Adding to Your Debt

Before aggressively paying down debt:

• Pause any credit card spending you cannot pay off in full each month
• Remove your card from online retail accounts to reduce impulse purchases
• Build a small emergency fund ($1,000–$2,000) so that an unexpected expense doesn’t send you back to credit cards

Step 3 — Choose a Repayment Strategy

There are two main strategies for paying off multiple debts:

The Avalanche Method (mathematically optimal)

Pay the minimum on all debts, then put any extra money toward the highest interest rate debt first.

• Minimises total interest paid
• Best for people who are motivated by numbers and efficiency
• May take longer to see any debt fully disappear

The Snowball Method (psychologically effective)

Pay the minimum on all debts, then put any extra money toward the smallest balance first, regardless of interest rate.

• You eliminate debts faster (in number terms), which provides motivation
• May pay slightly more in total interest than avalanche
• Works well for people who need visible wins to stay motivated

Both methods work — the best method is whichever one you will actually stick to. See the Debt Snowball vs Avalanche guide for a detailed comparison.

Step 4 — Find Extra Money to Throw at Debt

Common ways Australians accelerate debt repayment:

• Apply the tax refund directly to debt (the average ATO refund is around $3,000)
• Sell items you no longer need (Facebook Marketplace, eBay)
• Reduce discretionary spending temporarily (dining, streaming, subscriptions)
• Pick up extra hours, freelance work, or a second income
• Redirect any savings that were going to low-priority goals temporarily

Step 5 — Consider Debt Consolidation

If you have multiple high-interest debts, consolidating them into a single lower-rate loan can reduce your interest bill and simplify repayments.

Options in Australia:

• Balance transfer credit card — 0% interest for an introductory period (typically 12–24 months); requires discipline to pay off before the promotional rate ends
• Personal loan — may offer a lower rate than credit cards; fixed repayments over a set term
• Debt consolidation loan — a personal loan specifically for consolidating existing debts

See the Debt Consolidation Guide for more detail.

HECS-HELP Debt — A Special Case

HECS-HELP student loans are different from commercial debt:

• No interest — HECS is indexed to CPI (not interest-bearing)
• Repayments are automatic — deducted via PAYG when your income exceeds the threshold (~$54,435 in FY2024–25)
• Does not appear on your credit report — HECS does not affect your credit score
• Generally a low priority for extra repayments — prioritise commercial debt (credit cards, personal loans) before voluntarily paying off HECS

CPI indexation can increase your HECS balance in high-inflation years. In FY2023, HECS balances were indexed by 7.1%.

How Long Will It Take?

The time to pay off debt depends on the balance, interest rate, and how much extra you pay each month. As a rough guide:

This illustrates why minimum repayments on high-interest debt lead to very slow progress.

FAQ

Should I pay off debt or build an emergency fund first? Build a small starter emergency fund ($1,000–$2,000) first, then aggressively pay off high-interest debt. Without any emergency buffer, an unexpected expense will send you straight back to borrowing.

What is a hardship arrangement? If you are struggling to make repayments, Australian credit providers are required to have a hardship process. Contact your lender before you miss payments. Arrangements may include reduced repayments, a payment pause, or fee waivers.

Does paying off debt improve my credit score? Yes — reducing credit card utilisation and eliminating accounts in arrears both improve your credit score over time. Closing very old accounts may slightly reduce your score temporarily.

See also: Debt Snowball vs Avalanche | Debt Consolidation Australia | Emergency Fund Guide

For advice tailored to your situation, speak with a licensed financial adviser or financial counsellor. Free financial counselling is available via the National Debt Helpline (1800 007 007).