How to Get Out of Debt in Australia: A Step-by-Step Plan for 2026

The first step is clarity — write down every debt you have, including the lender, current balance, interest rate, minimum repayment, and due date. This includes credit cards, personal loans, car loans, BNPL balances, store cards, family loans, and any ATO debt. Many people have a vague sense of their debt but avoid adding it up — the avoidance makes the situation worse, not better.

Once listed, add up the total. Confronting the full number is often sobering, but it's the necessary starting point. Then sort by interest rate, highest to lowest. This is the order you'll attack them (avalanche method) or, if motivation is your biggest challenge, sort by balance smallest to largest (snowball method). Use our Budget Planner to build a complete picture of your income, expenses, and debt.

Getting out of debt faster requires directing more money toward repayments than you currently are. This means either reducing expenses, increasing income, or both. Look at your spending and identify categories where you can cut without significant lifestyle impact — subscriptions you don't use, eating out more than necessary, impulse purchases.

Even $200–$300 extra per month toward your highest-interest debt makes an enormous difference. On a $10,000 credit card at 20% interest, adding $200/month to your repayment reduces the payoff time from 6+ years (at minimum payments of ~$200) to less than 2 years, saving thousands in interest. Consider whether a side hustle is viable — delivery, freelancing, or selling unused items can generate a meaningful lump sum quickly.

Many Australians don't realise they can negotiate with creditors directly. Banks and lenders would rather receive reduced repayments than no repayments, and they'd rather keep you as a customer than send you to debt collection. Common negotiations include: requesting a lower interest rate (particularly if your credit score has improved since you took out the card), requesting a repayment holiday for 1–3 months while you recover financially, or negotiating a lump-sum settlement for less than the full balance if you've come into funds.

For formal hardship arrangements, call the lender's hardship team specifically. State that you're experiencing financial hardship and ask what options they can offer. Under the National Credit Code, they must consider your request and respond within 21 days. Free financial counsellors at the National Debt Helpline (1800 007 007) can negotiate on your behalf if you prefer.

If your debt is unmanageable despite your best efforts, formal options exist in Australia. Debt agreements (Part IX): A legally binding arrangement under the Bankruptcy Act where you propose to pay creditors a percentage of what you owe. Less severe than bankruptcy but still recorded on the National Personal Insolvency Index for 5 years and significantly damages your credit file. Personal insolvency agreements (Part X): Similar to a debt agreement but more flexible and for people with higher income. Bankruptcy: The most serious option — debts are extinguished but you lose most assets, it's recorded for 7 years on your credit file, and there are ongoing restrictions.

Before pursuing any formal option, speak with a free financial counsellor at the National Debt Helpline or seek legal advice. These options have serious long-term consequences and should only be used when informal solutions are exhausted.

How long does it take to get out of debt? It depends entirely on your total debt and how much extra you can put toward repayments. A clear plan with consistent extra repayments typically clears consumer debt (credit cards, personal loans) in 1–5 years. Use our Credit Card Payoff Calculator to estimate your specific timeline.

What's the fastest way to become debt-free? Combination of: cutting expenses, increasing income (temporarily or permanently), using balance transfer cards to reduce interest during payoff, and aggressively applying every spare dollar to the highest-rate debt first.

Can the ATO put me on a payment plan? Yes. The ATO regularly arranges payment plans for individuals with tax debts. Contact them proactively — they're generally willing to negotiate if you engage early. Interest applies to the outstanding balance but it's manageable.

Is going bankrupt the right option for me? Very rarely the first choice — its consequences (7 years on credit file, loss of assets, income contributions if earnings exceed a threshold) are severe. Exhaust all other options first. Seek free advice from a financial counsellor before making this decision.

Will debt management hurt my credit score? Any formal debt arrangements (debt agreements, personal insolvency) will significantly impact your credit score for up to 5–7 years. Informal arrangements (hardship plans) have a lesser impact. The credit scoring impact is one reason to try informal resolution first.