What is debt?

A look at how Australians get into debt and how it can be managed

Debt can sound scary and overwhelming when you don’t really understand what it is or how someone gets into it. But with the right support, learning about debt and how to better manage your money can be simple.

Debt simply describes the situation where one person or party owes money to another. It sounds straightforward, but it can quickly become complicated. When an individual’s debt becomes unmanageable, it can cause significant stress and have a negative impact on their life.

Debt is common in Australia. Recent national surveys show that 37 percent of us are struggling to pay off debts, so reaching out for help isn’t something to be ashamed of.

Read on to learn the definition of debt, as well as how you can avoid it, revive your finances and regain control of your life.


manage debt


What is the meaning of debt?

The definition of debt is simply an amount of money borrowed by one party from another. People don’t always have debt because they’re struggling financially. Many individuals and businesses use debt to make big purchases that they wouldn’t be able to afford without borrowing.

Normally, this debt is agreed to in a contract such as a home loan, personal bank loan or business loan. This allows the borrower and lender to make a debt arrangement agreement so that the money can be paid back at a later date, often in installments, and usually with interest.

How to understand debt

People can accrue all types of debts. The most common are mortgages, car loans, personal loans and credit cards. These types of debts usually have repayment terms that allow the borrower to pay off their debt over several years at pre-arranged intervals. These debts almost always include interest, which is a percentage of the loan that is paid back to the lender on top of the original loan amount.

Interest is a way of compensating the lender for the risk they took when agreeing to lend you money, and is how institutions such as banks and credit card providers make a profit from doing business with you.

What different types of debt can you get into?

So while debt can be a good thing when it’s properly managed— as we all know, unexpected events are a simple fact of life, and expenses can easily creep up when they’re least expected. 

Sometimes, even a small change in financial routine can quickly snowball into a big problem. That’s why having a thorough understanding of the different types of debt you can get into before you sign any contract is essential. 

Here’s some of the most common types of debt and how they can be managed.

Credit card debt

One of the most common and easily accumulated debts is credit card debt. There’s a few reasons why credit cards are considered one of the more risky debts to take on if you aren’t well organised or good at spending within your means.

In Australia, the average credit card interest rate is 16.58% which is very high—if you don’t make your full monthly repayments on time this can get very expensive, fast.

Credit cards can also very quickly affect your credit score, meaning if you aren’t good with repayments, you can have trouble getting other loans or even a mortgage later down the road. They’re also an easy way to spend money that you don’t have, meaning they trigger overspending problems, in some people.

If you’re experiencing credit card debt, there are ways you can manage your situation and avoid further problems.

  1. If you’re juggling multiple credit cards, credit card debt consolidation allows you to combine your debts into one easy to manage repayment scheme
  2. Create a debt management plan with a debt solution specialist
  3. Look into credit repair solutions

Personal loans

Personal loans are often used to provide cash flow or fund a specific activity such as renovating a home. Personal loans can be secured, meaning an asset such as your car is used as collateral for the loan, offering you a lower interest rate; or unsecured loan however doesn’t require you to have an asset to secure the loan but will have a higher interest rate.

If you’re having trouble making repayments on your personal loan, there are a few options on how to manage it. 

Start by:

Car loans

As the name suggests, car loans are financial loans taken out for the purpose of buying a car. They can be accessed through the car dealership itself, with a bank, or with a non-bank lender. It’s always important to shop around and avoid taking on a lender just because they’re convenient. Car loans can be expensive, so it’s important that you are well prepared before you take one on. If you do happen to find yourself struggling with car loan debt there’s a few options you can look at.

  • Refinance your car loan at a reduced rate
  • Downsize your car to pay off the existing debt
  • Consolidate your car loan debt with your other debts


Taking on a mortgage is one of the most exciting adventures you can embark on but it’s also likely one of the biggest personal debts you’ll ever have. And as exciting as being a homeowner is, because your mortgage is secured with the house itself as collateral, if you fail to make your repayments, your home could be repossessed by the bank.

If you are worried about your mortgage debt, it’s essential that you try to find a solution as soon as possible. 

  • Speak to your lender to see what your options are
  • Consider mortgage refinancing
  • Book a free consultation with a debt counsellor to talk about your options and receive a second opinion to your lender

Payday loans

Payday loans are quick fix solutions that often lead to long term financial stress for the borrower.  That’s because these types of loans are cleverly marketed to target people in need of emergency cash and as a result may turn a blind eye to the extremely high interest rates and hidden fees that come with the loan itself. In Australia, some payday lenders charge up to 48% just in interest. 

If you’ve found yourself stuck in a payday loan debt cycle in which you require more payday loans to pay off the last, you’re not alone. You can however break the cycle.

  • If you’re juggling multiple payday loans, debt consolidation can help you streamline them into manageable, affordable repayments
  • Talking to a debt counsellor can help you understand alternative solutions that will help you avoid payday loans in the future.
  • Discuss how credit repair can help get you and your finances back on track

Business debt

Business debt is when your business owes money it cannot pay at this time. This could include tax debt, payroll or business loans that you can’t repay due to business being slow or an unexpected expense that’s occurred.

If you’re experiencing business debt, the following situations:

  • Clear any outstanding invoices that you can
  • Speak to your lender about the options available to you
  • See if you can negotiate with your creditors to delay payment or offer installments
  • Speak to an independent debt counsellor who can give you a free debt assessment and objective advice on next steps
  • They may suggest debt consolidation

Debt Negotiators are experts in helping Australians manage and pay off their debts so they can take back control of their lives.

We’ll carefully look at your unique financial situation and work with you to create achievable solutions you’ll feel good about sticking to. 

If you’re struggling with any debt, contact our friendly team or book in for a free debt assessment today to find out how we can help.


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