Debt before investing: what to check

Debt has a real price

Credit card interest can quietly eat into your pay. If you owe money at a high rate, that cost keeps adding up under the loan terms, while investing returns could go either way. It’s worth looking at expensive debt before taking more risk.

Not all debt is the same

A mortgage, HECS-HELP debt and a credit card work differently. Compare the rate, whether it changes, fees, repayment rules and any consequences of paying extra. Do not assume every debt should be handled in exactly the same way.

A realistic debt plan

List what you owe, minimum repayments, due dates and interest rates. Keep up with required repayments. Then investigate whether directing any spare money towards the most expensive debt could reduce your costs. If repayments are difficult, ask your lender about hardship options and get free help from the National Debt Helpline.

Why interest changes the maths

If you owe A$2,000 on a card charging 20% a year, leaving the balance there can cost roughly A$400 in interest over a full year under a simplified constant-balance example. Actual card interest is usually calculated more frequently, and repayments change the total. The important point is that the cost can be substantial and reasonably predictable, whereas a share investment might rise or fall.

This doesn't mean you must clear a mortgage or HELP debt before investing. Their rates, rules and consequences are quite different. Compare the actual cost of each debt rather than treating all borrowing alike.

A repayment plan you can follow

1. Write down each balance, interest rate, minimum repayment and due date.
2. Keep essentials and required minimum payments covered first.
3. When possible, direct extra repayments to the highest-cost debt while keeping minimums up on the others.
4. Check for early-repayment fees and make sure the plan leaves enough for basic living costs.

If you're already missing repayments, contact the lender's hardship team. Free financial counselling is available through National Debt Helpline. You don't have to fix an unmanageable debt situation by yourself.