How to get on top of personal debt

For many people, getting on top of their finances can feel like a challenge. But it doesn't have to be.

By making informed and responsible choices, you can use a personal loan to consolidate debt or supplement your income to reach your personal financial goals – whether you’re paying for an overseas holiday, managing your debt, starting a family or anything else you have your heart set on.

Stay in control of your debt

In recent years, rising property prices, low interest rates and the availability of consumer credit have seen Australians become more comfortable taking on debt.

While the proportion of households with debt has remained stable in the past 12 years, the average level of debt has almost doubled.

But, some debt can be good according to the ABS, as it helps increase personal wealth and drive the national economy. High levels, however, can also put households at significant financial risk.

If the income of your household is insufficient to cover debt repayments, you may be in danger of defaulting in the event of ‘economic shock’ – such as an increase in interest rates, fall in house prices, job loss or other change in family circumstances.

So if you’re considering taking out a personal loan, make sure you have the income and assets to cover your debts. Try our Budget Planner to assess your current financial situation or talk to a financial adviser.

How a personal loan can help

Some people might be more familiar with using personal loans to fund major purchases, such as:


·         Whitegoods and appliances.

·         Cars.

·         Weddings.

·         Home renovations.

·         Holidays.


However, a personal loan can also get you back in control of your finances. For example, you could roll multiple debts – such as credit cards – into a debt consolidation loan, with an interest rate that is several percentage points lower. That way, you only have to make one easy repayment each month, which you can tailor to suit your budget, and you won’t accumulate as much interest.

By making regular repayments and avoiding any further debt, you could potentially pay off the loan faster than you could the credit cards.

To work out how quickly you could pay back outstanding debt, use our Personal Loan Repayment Calculator.

The different types of personal loans

There are two main types of personal loans: secured personal loans and unsecured personal loans.

When taking out a secured personal loan, you offer up a valuable possession – such as your car or house – as collateral, which the lender can then repossess if you default on the loan.

An unsecured personal loan is not secured with an asset, which means the lender has no way to get their money back if you fail to make the repayments. For this reason, unsecured personal loans carry more risk for the lender, and therefore tend to have higher variable interest rates.

When comparing debt consolidation loans, you can choose whether to search for secured or unsecured loans.

How can I ensure a personal loan will help me manage my debt?

When used correctly, the right personal loan can help you get on top of debt, not add to it.

Before committing to any product, make sure you:


1      Plan ahead: Before applying for a personal loan, consider whether there are likely to be any changes to your financial or family situation within the specified loan term – usually one to five years – that might affect your ability to make repayments.

2      Can comfortably afford it: It’s a good idea to work out a realistic budget to make sure the repayments won’t break the bank.

3      Look at the comparison rate: Of all the things to consider when comparing personal loans, the comparison rate is perhaps the most important. This number includes any fees and charges to indicate the true cost of the loan and makes it easy to compare different loans from various lenders.

4      Use only reputable providers: Bear in mind that some personal loans, particularly the ‘online payday’ variety, are very expensive and may add to your financial strain .

InfoChoice recommends that, before you make any financial decisions that you seek professional advice from a qualified adviser. If you are unsure about the credit provider, you can search and check for futher information about them including if they are licensed, through

Start comparing unsecured and secured personal loans today.

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