Money Matters

How to manage debt and get yours under control


There are very few of us who don’t have some form of debt, whether it comes in the form of a home loan, credit card, HECS-HELP loan or whatever else.

Debt may be a fairly common occurrence for the average Australian, but that doesn’t mean you should turn a blind eye to it. Understanding the different types of debt and learning how to manage debt can save you a headache in the future.

Understanding ‘good debt’ and ‘bad debt’

Accumulating debt is easy but understanding ‘good’ and ‘bad’ debt can help you create a strategy to pay off both.

Debt is considered ‘good’ when it either carries a low-interest rate or invests in your future, or both.

Here are some examples of good debt:

  • Your HECS-HELP debt because it’s a 0% interest loan paid only once you earn over a certain income
  • Business loans that help you take that side hustle into professional money-making territory
  • A low-interest mortgage.

Examples of bad debt:

  • Personal loans and credit card debts
  • Car loans – consider how much a vehicle’s value decreases the second it leaves the car yard (unless you need it for work or an essential purpose, in which case you may be able to claim it on tax). 

Signs that you might have too much debt

You might be taking on too much debt when you:

  • Have barely any savings and no emergency fund
  • Need your credit card to make minor transactions and are only able to pay back the minimum amount each month
  • Haven’t started saving for your retirement
  • Make regular repayments but your debt balance stays the same
  • Have a debt balance that’s more than half of your income
  • Live paycheck to paycheck
  • Have trouble keeping track of your debts.

If any of the above sounds familiar, it’s a good idea to reflect on how much debt you’re actually taking on and getting rid of it where possible.

How to pay off your debt

Wiping your debt and breaking the debt cycle is intimidating, but not impossible. Here’s how to go about sustainably reducing your debt or even paying it off completely.

  1. Start by laying out your debts and figuring out how much of your income you can set towards paying them.
  2. You can order your debts in one of two ways: either from the debt with the highest interest rate to the lowest (‘the avalanche’), or from the lowest debt dollar amount to the highest (‘the snowball’). The goal with either way is to remove each debt one-by-one, simplifying the process and cutting the overall interest you’re paying.
  3. Make sure you’re paying the minimum payment on each debt by its due date, so you’re not charged with any additional interest or fees.
  4. If there is any leftover cash in your budget, send it straight into your priority debt.
  5. Continue this process until your debts are paid.
  6. Chat to your bank. If you’re finding managing debt is too stressful and overwhelming, your bank should be able to help you put arrangements in place.

Tools to help set up your debt-paying budget

If you have a Save account with ubank, we can help you set aside money for your debts. You can have up to 10 Save accounts and set savings targets on any one of them. Just tell us how much you need and when you’ll need it by, and we’ll give you a plan to help you get there. For example, you could set up one Save account with a savings target for your study loan and another for your mortgage so you can see how you’re going paying off your different debts.

Being in debt (whether ‘good’ or ‘bad’) isn’t a disaster

Once you’re debt free, keep going! Establishing good savings habits is essential to those other goals in life – a new car, house deposit, or a big overseas holiday are all within reach if you keep pushing ahead with your saving.

With the right strategy, the right tools and a bit of financial willpower, the world can be one big debt-free oyster.