How to Get Out of Debt in Australia: Step-by-Step Guide for 2026
A practical, no-judgment guide to getting out of debt in Australia. Covers the snowball and avalanche methods, negotiating with creditors, debt agreements, free help from the National Debt Helpline, and when bankruptcy might be the right option.
Step 1: Assess your total debt honestly
The first step to getting out of debt is knowing exactly what you owe. This sounds obvious, but many Australians avoid tallying their total debt because the number feels overwhelming. Pull out every credit card statement, personal loan, car loan, BNPL account, HECS-HELP balance, and any informal debts to family or friends. Create a simple spreadsheet or use our Budget Planner with the following columns: creditor name, total balance owing, interest rate, minimum monthly payment, and due date. Sort the list by interest rate from highest to lowest. The average Australian household carries around $20,000 in non-mortgage debt, so if your number is higher, you are not alone. Getting the full picture in front of you is confronting but essential — you cannot build a repayment plan without knowing the terrain. Check your credit report for free through Equifax, Experian, or illion to ensure you have not missed any debts, including old accounts that may have been sent to collections without your knowledge.
Step 2: Choose your strategy — snowball vs avalanche
The two most effective debt repayment strategies are the debt snowball and debt avalanche methods. The avalanche method targets the debt with the highest interest rate first while making minimum payments on everything else. Once the highest-rate debt is cleared, you redirect those payments to the next highest rate. Mathematically, this saves the most money in total interest. The snowball method targets the smallest balance first, regardless of interest rate. Once the smallest debt is cleared, you roll that payment into the next smallest. This method costs slightly more in interest but provides psychological momentum — clearing a $500 debt in two months feels like progress and keeps you motivated. Research suggests most people stick with the snowball method longer because of these quick wins. For Australians with a mix of credit card debt at 20-22% and a car loan at 7-9%, the avalanche method typically saves $500-$2,000 over the repayment period. But the best method is the one you will actually stick with. Use our Credit Card Payoff Calculator to model both approaches with your actual balances and rates.
Step 3: Negotiate with your creditors
Most Australians do not realise that creditors — including banks, credit card companies, and utility providers — are legally required to work with you if you are experiencing financial hardship. Under the National Credit Code, licensed credit providers must consider your hardship application and respond within 21 days. You can request reduced interest rates (banks will often drop credit card rates to 12-15% from the standard 20-22% if you explain your situation), temporary payment pauses (typically 1-3 months), extended repayment terms to lower your monthly commitments, waiver of late fees and over-limit fees, or a lump-sum settlement for less than the full balance if you have access to a one-off payment. Call your creditor's hardship team directly — the number is usually different from general customer service and is listed on their website. Be honest about your situation, have your income and expense figures ready, and ask specifically what options are available. If you are uncomfortable negotiating yourself, a free financial counsellor from the National Debt Helpline (1800 007 007) can call the creditor on your behalf.
Step 4: Consider a formal debt agreement (Part IX)
If informal negotiation is not enough, a Part IX Debt Agreement is a formal, legally binding arrangement between you and your creditors under the Bankruptcy Act 1966. A debt agreement allows you to repay a portion of your unsecured debts (credit cards, personal loans, medical bills) over a set period — typically 3-5 years — at an amount you can afford. Your creditors vote on the proposal, and if a majority by value accept it, all creditors are bound by the agreement. During the agreement, interest stops accruing on included debts, creditors cannot take legal action against you, and you make a single regular payment to a debt agreement administrator who distributes funds to your creditors. However, a Part IX agreement has serious consequences. It is listed on your credit report for 5 years (or the duration of the agreement plus 2 years, whichever is longer), it appears on the National Personal Insolvency Index permanently, and it restricts your ability to obtain credit above $6,354 without disclosing the agreement. It is a better outcome than bankruptcy for most people, but it should not be entered into lightly.
Step 5: Get free help — National Debt Helpline (1800 007 007)
The National Debt Helpline is a free, confidential service staffed by qualified financial counsellors. Call 1800 007 007 Monday to Friday, 9:30am-4:30pm (local time in each state). Financial counsellors are not debt management companies — they do not charge fees, they do not sell products, and they work solely in your interest. They can help you understand your options, create a realistic budget and repayment plan, negotiate directly with creditors on your behalf, advise on whether a debt agreement or bankruptcy is appropriate, refer you to legal aid if creditors are taking court action, and connect you with emergency relief services if you need immediate help with food, housing, or utilities. They also offer online web chat through ndh.org.au if you prefer not to call. Beyond the national helpline, each state has community legal centres and financial counselling services — many are co-located with community organisations that can help with other issues like housing stress, family violence financial abuse, and gambling-related debt. These services exist because Australians helping Australians is how we do things. There is zero shame in calling.
Step 6: Use balance transfer cards strategically
A balance transfer credit card can be a powerful tool for paying off high-interest debt faster — but only if used correctly. Several Australian banks offer 0% interest on balance transfers for periods ranging from 12 to 36 months. The strategy: transfer your existing credit card balance to the new card, then divide the total balance by the number of interest-free months to calculate your required monthly payment. For example, transferring a $5,000 balance to a card with 24 months at 0% means paying $209 per month to clear the debt completely before the interest-free period ends. Key traps to avoid: the balance transfer fee (typically 1-3% of the transferred amount — on $5,000 that is $50-$150), the revert rate after the interest-free period (often 20-25%, higher than your original card), and the temptation to make new purchases on the old card once the balance is cleared. The golden rule is to cut up or freeze the old card and set up automatic payments on the new card for the calculated amount. See our guide to the best balance transfer cards for current offers.
Step 7: When to consider bankruptcy — and what it really means
Bankruptcy is the option of last resort, but for some Australians it is genuinely the right path. You should consider bankruptcy when your debts significantly exceed your ability to repay them over a reasonable timeframe (typically 3-5 years), when you have no significant assets to protect, and when the stress of unmanageable debt is affecting your health and relationships. In Australia, bankruptcy lasts for 3 years and 1 day from the date you file. During bankruptcy, most unsecured debts are forgiven, creditors must stop all collection activity, and you make income contributions if your after-tax income exceeds a threshold (currently around $65,000 for a single person with no dependants). However, bankruptcy has significant consequences: it is recorded on your credit file for at least 5 years (and on the National Personal Insolvency Index permanently), you cannot travel overseas without your trustee's permission, you cannot be a company director, and you may lose assets including property equity and vehicles above a threshold value. Your superannuation is generally protected. HECS-HELP and child support debts are not discharged by bankruptcy. Before making this decision, always speak to a free financial counsellor through the National Debt Helpline to ensure you have explored every alternative.
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General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
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